Best Way to Invest 10,000 to Maximize Returns Safely

If you’re looking for the best way to invest 10,000 dollars, an excellent choice is investing in small cap value stocks.  Here is the evidence in favor of this time-tested method of maximizing stock returns.

Value Stocks with a Low Price/Book, Low Price/Earnings, or Low Price/Cash Flow Ratio Beat the Market

Best Way to Invest 10,000 DollarsThese studies come from What Has Worked in Investing by Tweedy, Browne.  The idea is that undervalued stocks such as these will increase in price greater than average to reach a fair market price in the long-term.  In one study from 1967 to 1984, the decile of stocks with the lowest  P/B ratio had a compound annual return of 14.36% vs. 6.06% for the decile with the highest P/B ratio.  A study of the P/E ratio from 1966 to 1984 found that the decile with the lowest P/E ratio had a compound annual return of 14.08% vs. 5.58% for the highest P/E ratio.  In a study of rolling five year periods of low price/cash flow stocks, the decile with the lowest ratio annually returned 20.1% vs. 9.1% for the decile with the highest ratio.  Value stocks are a winning bet.

Stocks of Companies with a Small Market Capitalization Beat the Market

Logic says tiny companies have more room to grow into giants than already large companies do.  One 17 year study showed that the decile of the companies with the smallest market capitalizations had a compound annual return of 32.8% vs. 13.0% for the largest decile.  Multiple other studies worldwide showed this effect as well.

Nobel Prize Winner in Economics Eugene Fama Shows Small Cap Value is a Winner

In 1992, Eugene Fama and Kenneth French published a classic finance article called The Cross-Section of Expected Stock Returns.  They challenged previous research that the stock market is essentially unbeatable (Efficient Market Hypothesis) and showed that small stocks tend to beat market averages in the long run, and so do value stocks.  Fama and French noted that these stocks performed well without taking on more risk (without having larger fluctuations in value).

The Brandes Institute published a study analyzing the returns of stocks from 1990 through 2008.  They found that the highest stock returns were from small cap value stocks.  The chart below summarizes their findings.  Notice that small cap value beat everything else.

Small Cap Value Outperforms

Small Cap Value Outperforms

Executing the Plan with a Low Cost Small Cap Value Fund

Robust research shows that small value stocks outperform the market handily.  Also, research shows that low cost funds perform better than funds with higher fees.  So, what is the best way to invest 10,000?  Financial studies strongly support buying a fund such as the Vanguard Small Cap Value Fund (VISVX).  The fund has an expense ratio of 0.24%, which will save you more money in fees than 82% of similar funds.

Below is a chart of the VISVX fund showing that the research is still true; small value stocks perform exceptionally well.  Since inception through January 2, 2014 VISVX beat the S&P 500 index 178.86% to 27.08%.  Impressive!

Best Way to Invest 10,000

Vanguard Small Cap Value Fund

 

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References

Brown, Christopher H., William H. Brown, Thomas H. Shrager, John D. Spears, and Robert Q. Wyckoff, Jr. What Has Worked in Investing. Rep. Tweedy Browne Company, LLC, 2009. Web.

Fama, Eugene F., and French, Kenneth R. “The Cross-Section of Expected Stock Returns.”The Journal of Finance 47.2 (1992): 427–465. Print.

“Value vs. Glamour: A Study of the Indices.” The Brandes Institute, 2009. Web.

What is the Highest Credit Score You Can Get?

What is the highest credit score you can get?  The answer: there are multiple credit score ranges.  This article will make it easy for you and show you the ranges of the most common credit score models.  Double check which model your scores uses to see where it falls.

FICO Credit Score Range: 300 to 850

The FICO score is the most widely used credit score.  Experian, Equifax, and TransUnion all use it, but have different names for it.  FICO is what you’ll get from www.AnnualCreditReport.com.  What is the highest credit score you can have?

  • Equifax BEACON® Score: 300 to 850
  • Experian FICO® Risk Score, Classic: 300 to 850
  • TransUnion FICO® Risk Score, Classic: 300 to 850

Experian PLUS Score Range: 330 to 850what is the highest credit score you can get

Experian lists above 700 as a good credit score range, indicating good credit management.  You will get three scores through Experian.  What is the highest credit score?

  • Equifax PLUS Score: 330 to 850
  • Experian PLUS Score: 330 to 850
  • TransUnion PLUS Score: 330 to 850

Equifax Credit Score Range: 280 to 850

Equifax also will supply all three credit scores on its own scale.  What is the best credit score you can have?

  • Equifax: 280 to 850
  • Experian: 280 to 850
  • TransUnion: 280 to 850

VantageScore® Range: 501 to 990

TransUnion supplies a score for all three bureaus using the VantageScore® model.  What is the highest credit score possible?

  • Equifax: 501 to 990
  • Experian: 501 to 990
  • TransUnion: 501 to 990
what is the highest credit score you can have

Example of a Credit Score Range: VantageScore® Purchased Through TransUnion

See Your Score on a Sliding Scale

To see where you fall, get your report for free.  Healthy scores on one model will mean good scores on other models.  You are entitled a free report from each bureau annually, as per the Fair and Accurate Credit Transactions Act of 2003.  The only government-authorized free report site is www.annualcreditreport.com, which will give you free reports, but make you pay for the actual score.  If you use another site, be sure to cancel before the trial period ends to prevent any hidden charges.  For example, the TransUnion VantageScore® requires cancellation before a 7 day trial period ends.

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For other personal finance topics such as how to invest 100K until retirement and a review of the best personal finance app, explore our site.

References

“Credit Education.” Credit Information. TransUnion, n.d. Web. 05 Dec. 2013.

“More than a Credit Score. The Score That Matters®.” MyFICO. FICO, n.d. Web. 9 Jan. 2014.

“Understanding Credit Scores and Reports.” Understanding Credit Scores at Experian.com. N.p., n.d. Web. 05 Dec. 2013.

“Why Are There Different Credit Scores?” Different Credit Scores. Equifax, n.d. Web. 05 Dec. 2013.

Stocks and Shares for Beginners

Below are some research-based principles of buying stocks and shares for beginners.  First learning the stock market can be complicated.  Sticking to these five basic principles will help to maximize your returns.

Principle 1: Stocks Have High Returns But are Risky (Risk-Return Tradeoff)

For those interested in learning to invest in stocks, the good news is that stock market returns have averaged about 10% per year since inception, which makes them one of the highest-returning investment options for the average person.  According to basic economic theory, however, these handsome returns must come with higher risk, which means that their values will fluctuate up and down widely as they trend upward over time.  If you can stomach these upswings and downswings, stocks can slowly make you rich.  The bottom line is that you must keep a stock portfolio long-term and avoid the urge to sell during market downturns.  This is one of the most critical lessons of trading stocks and shares for beginners since the frustration and urge to dump shares can be so strong.

Principle 2: Stock-Picking May be Too Competitive to Get an Edge (Efficient Market Hypothesis)

Nobel Prize winner Eugene Fama published an absolutely pivotal finance article in 1970 called, “Efficient Capital Markets: A Review of Theory and Empirical Work.”  He presented convincing data that the stock market is quite efficient, stock prices reflect all available information, and that attempting to pick so-called good stocks to invest in cannot win you larger returns (unless your portfolio is riskier).  For example, mutual fund managers that outperformed the market in one period tended to not do so in the next period, indicating the higher returns were purely luck.

There are millions of competitive investors, all with access to the same information (except those doing insider trading, which is illegal), all competing for high returns, making “beating the market” extremely difficult.  Picking companies because you like them is not how to invest in stocks: the research shows this won’t work.

Stocks and Shares for Beginners

Burton Malkiel’s Classic Approach to Stocks and Shares for Beginners

In 1973, Burton Malkiel published an investment classic called A Random Walk Down Wall Street.  He provided strong evidence that stock prices are random, and has continued to do so.  Decades later in the 2007 edition of the book,  one study looked at the returns of the 20 top-performing equity funds in the 1980s to see how they did in the 1990s.  In the 1980s, the top 20 funds beat the S&P 500 by 3.9 % annually.  In the 1990s, these “winning funds” then lost to the S&P 500 by 1.2 % annually, showing that the initial winners were probably just lucky!

This posed a problem for all investors seeking higher than average returns because if stock prices are random, stock-picking would of course be useless!  Just like the aforementioned Efficient Market Hypothesis, this argued that no individual investor can do any better than average consistently because stock market predictions are largely impossible.

This is also one of the most important stock market tips for beginners, since most investors want to actively buy and sell “winners,” but the research shows picking “hot” stocks is largely a waste of time.

Principle 4: Keep Costs Low to Maximize Returns

There are a multitude of online stock brokerage firms out there, with widely varying commissions per trade.  For mutual funds and ETFs, expense ratios (how much the fund manager is charging you) differ widely as well.  As shown in principles 2 and 3, however, if the stock market is incredibly competitive and random, paying higher commissions will only get you lower returns.

As referenced in The Elements of Investing, The Lipper and Bogle Financial Research Center published a study of fund returns from 1994 to 2008, breaking funds into four groups by fees.  They found that the quartile with the lowest fees outperformed the quartile with the highest fees by about 2.6 % annually.  Firms may promise added value with better research and superior customer service, but the bottom line is that high fees and big expense ratios generally are not worth it.  Stick with funds with low expense ratios (such as those offered by Vanguard) and a discount broker such as Options House.

Principle 5: Market Capitalization and Value Characteristics Can Outline Expected Returns (Three Factor Model)

The competitive nature of humans makes most of us search for the best stocks to invest in.  One triumph for people wanting to beat the market came in 1992 when Eugene Fama and Kenneth French published “The Cross-Section of Expected Stock Returns,” which showed that in addition to the outperformance of risky portfolios, small cap stocks tend to outperform large cap stocks and value stocks tend to outperform growth stocks.  These are great stocks to watch.

Of all these tips on stock market investing for beginners, this one will be the most difficult to grasp at first.  To make it simple, a diversified small cap value index fund is a safe way to exploit these returns.  One I recommend is VISVX, the Vanguard Small Cap Value Index Fund.  From its inception in January of 2000 through December 2012, it returned 110.14 % vs. the S&P 500′s -1.06 %.  Read more research about this incredibly useful finding in our post about picking which stocks to buy now.

Conclusion

The above points are a concise guide of how to invest in the stock market for beginners.  There is an endless amount of stock market research out there, but if you start with these 5 principles, you will be well on your way to optimizing your returns and minimizing costs.

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For further reading on personal finance topics, such as the best way to invest 10,000 according to sound research, and answering the question of what insurance do I need, explore our site.

 

References

Fama, Eugene F. “Efficient Capital Markets: A Review of Theory and Empirical Work.” The Journal of Finance 25.2 (1970): 383-417. Print.

Fama, Eugene F., and French, Kenneth R. “The Cross-Section of Expected Stock Returns.”The Journal of Finance 47.2 (1992): 427–465. Print.

Malkiel, Burton G. A Random Walk down Wall Street: The Time-tested Strategy for Successful Investing. New York: Norton, 2007. Print.

Malkiel, Burton G., and Charles D. Ellis. The Elements of Investing. Hoboken, NJ: Wiley, 2010. Print.

The Best Way to Invest 5,000 According to Groundbreaking Research

What is the best way to invest 5,000 dollars?  This method follows an investing plan that economics Nobel Prize winner Robert Shiller recommends.  Shiller has found a tool that is more accurate than any other in predicting stock prices.  First, I’ll show how most stock prediction methods are worthless.  Second, I’ll show how remarkable his method is because it beats all other forecasting tools.  Third, in the final section of this article, I’ll show how Shiller tells investors to invest according to this method.  It’s worth noting that Professor Shiller is one of the most successful financial experts who supports the idea that above average returns are possible.

The Evidence That Almost All Stock Market Predictions Are UselessBest way to Invest 5000

Best-selling authors Burton Malkiel, a Princeton University Professor, and Charles Ellis (the founder of Greenwich Associates) write in their book The Elements of Investing, ”The largest, longest study of experts’ economic forecasts was performed by Philip Tetlock, a professor at the Haas Business School of the University of California–Berkeley.  He studied 82,000 predictions over 25 years by 300 selected experts.  Tetlock concludes that expert predictions barely beat random guesses. Ironically, the more famous the expert, the less accurate his or her predictions tended to be.”

Robert Shiller’s CAPE Ratio – Vanguard Proves it Beats all Other Predictors

Vanguard, however, has published an outstanding paper called, “Forecasting stock returns: What signals matter, and what do they say now?”  Their first primary finding is that, “stock returns are essentially unpredictable at short horizons.”  For example, they find nothing can accurately predict the following one year period.  Their second major finding is that, “many commonly cited signals have had very weak and erratic correlations with realized future returns even at long investment horizons.”  Their third critical takeaway is that, “valuation indicators—P/E ratios, in particular—have shown some modest historical ability to forecast long-run returns.”

Of all these valuation indicators, Yale University professor and Nobel Prize winner Robert Shiller’s is the most accurate.  It originated in a paper called, “Valuation Ratios and the Long-Run Stock Market Outlook.”  Shiller calls it the P/E 10 or the CAPE (cyclically adjusted P/E ratio).  It takes the P/E ratio of the S&P 500 and divides by the average earnings adjusted for inflation from the previous 10 years.  In the Vanguard study, they find Shiller’s ratio explains 43 % of the “proportion of variance of future real stock returns” for the following 10 year period.  Impressive.  Fortunately, the best way to invest 5,000 has two simple methods that follow this plan.

Best Way to Invest 5000 Dollars

Vanguard Study Shows Shiller’s CAPE is Most Accurate Predictor

Putting it Into Practice

One can expect higher returns by putting more money into the market when the CAPE is relatively low and putting less in when the CAPE is relatively high.  Professor Shiller offers an excel file on his website that shows you the current ratio, which you an use to time your stock purchases.  Alternatively, you can let a fund manager do the work for you and invest in Barclays ETN Schiller CAPE ETN (NASDAQ ticker symbol CAPE), which invests solely in sectors with a favorably low ratio.

The evidence is clear: stock market predictions should be based on a long-term horizon of about five to ten years at least.  Accordingly, this is not the best way to invest 5,000 dollars short term.  Rather, this is the best way to invest 5,000 dollars for the long run, when Shiller’s method truly works its magic.

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References

Campbell, John Y., and Robert J. Shiller. “Valuation ratios and the long run stock market outlook.” Journal of Portfolio Management 24 (1998): 11–26. Print.

Davis, Joseph, Roger Aliaga-Díaz, and Charles Thomas. “Forecasting Stock Returns: What Signals Matter, and What Do They Say Now?” The Vanguard Group, 29 Oct. 2012. Web. <https://personal.vanguard.com/pdf/s338.pdf>.

Malkiel, Burton G., and Charles D. Ellis. The Elements of Investing. Hoboken, NJ: Wiley, 2010. Print.

What Insurance Do I Need: the Necessary Policies and the Common Mistake To Avoid

A Note on How Insurance Companies Make Profits

Insurance companies take a blanket approach to making money.  They sell policies to a multitude of customers called policyholders paying to protect against losses.  The payments the customers make are called premiums.  Generally, the companies will then invest these premiums to bring in more money.  If a customer suffers a loss (such as a car accident), the insurance company pays the customer a sum of money (incurred losses to the company).  The companies, of course, have expenses to maintain the business as well.  So, the companies have to hope that the income from premiums and investing those premiums exceeds the incurred losses and expenses.  Note that on average the insurance companies will make money from you.

What kind of insurance do I need? The Experts: Only Policies to Protect Against Financial Ruin

Despite the fact that insurance companies aim to make money from you, it is to your benefit to purchase policies that protect against financial catastrophe.  This is one of the most critical personal finance tips.  For example, if your home caught fire and you did not have an insurance policy, this would likely spell permanent disaster for your finances.  For the big policies that you need, internationally-renowned author Eric Tyson in his best-seller Personal Finance For Dummies breaks them into two categories: insurance on you (life insurance, disability insurance, and health insurance) and insurance for your assets (homeowner’s insuranceflood & earthquake insurance, liability insuranceauto insurance, uninsured/underinsured motorist insurance, and umbrella insurance for your home and vehicle).  When wondering, “What insurance do I need?” these are the policies that will protect against financial ruin to research further for your needs.

The Insurance Policies That Will Cost You in the Long-Run (The Mistake to Avoid)

What Insurance Do I Need

Essential Reading for All Consumers

Buying small policies is a losing game.  Regarding the purchase of these policies, Eric Tyson writes, ”You’re not going to come out ahead in the aggregate-if you did, insurance companies would lose money…on average, insurance companies pay out just 60 cents in benefits on every dollar collected.  Many of the following policies pay back even less-around 20 cents…”  Some of these “small potato” polices he then lists are: extended warranty and repair plans, home warranty plans, dental insurance, and credit life/credit disability insurance.  Over the course of your life, having many small policies will most likely lose you money.

The Bottom Line

What type of insurance do I need?  As long as you stick to policies that will protect against large financial disasters and avoid policies on small items, you will be protecting yourself the same way the financial experts do.

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Reference

Tyson, Eric. Personal Finance for Dummies. Indianapolis, IN: Wiley Pub., 2006. Print.

How to Invest 100K Easily, Maximizing Returns At the Right Time

For those researching where to invest 100K, this article shows why investing this sum of money in a lifecycle fund such as the Vanguard Target Retirement 2050 Fund (MUTF:VFIFX) is an excellent decision due to maximizing returns at the appropriate times and incredible simplicity.

Lifecycle Funds: the Amazingly Easy Solution of How to Invest 100K

Researching how to invest 100K can seem complicated, but it absolutely does not have to be.  Lifecycle funds (also called target date funds or age-based funds) are the simplest, most hands-off solution to investing your money for life.  If you are interested in the best way to invest 100K until you retire with minimal effort, these are the way to go.

The first step is to choose your retirement date.  Let’s say you want to retire in the year 2050 and want a fund with low expenses.  An outstanding choice is the Vanguard Target Retirement 2050 Fund (MUTF:VFIFX).  It is a no load fund with an expense ratio of 0.18%. This super low fee means you’ll get higher returns over time, as research overwhelmingly supports low fees.

The fund manager changes the asset allocation for you as time goes on, making the portfolio more conservative as you approach retirement.  This is why these funds are so worry-free and are a great choice for the best place to invest 100K.  If you’re retiring in 40 years, it makes sense to have a high risk, high return portfolio because you can accept large fluctuations at a young age when you don’t need the money.  As you approach retirement, it makes sense to move away from a high-risk portfolio to one with smaller fluctuations because you will be withdrawing the money soon.  Reducing risk as you approach retirement is one of the most basic investing money tips, and these do it for you automatically.

Example: the Fidelity Freedom 2050 Fund Adjusting Over Time

The Fidelity Freedom 2050 fund’s 2014 holdings are: 63% domestic equity funds, 27% international equity funds, 10% bond funds, and 0% short-term funds.  In 2050, it will hold 37% domestic equity funds, 16% international equity funds, 35% bond funds, and 12% short-term funds.  In short, it gradually moves away from risky stocks towards the less risky bond fonds and short-term funds.  A truly autopilot way to invest 100K.

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For other personal finance topics such as a review of the best personal finance app and stocks and shares for beginners, explore our site.

References

“Asset Allocation Funds: Fidelity Freedom ® Funds.” Fidelity Freedom Funds. N.p., n.d. Web. 06 Dec. 2013.

“Product Summary.” Vanguard Target Retirement 2050 Fund. N.p., n.d. Web. 06 Dec. 2013.

How to Make Money – 17 Simple, Unconventional Ways to Earn Extra Income

If you’re interested in how to make money from home, online, and in your local area, below are some of the most common methods.

How to Make Money Locally 

How to Make Money

How to Make Money

  1. Split Costs With a New Roommate.  Whatever a new roommate pays in rent will be extra cash in your pocket.  If you are renting, be sure to contact the property manager so as not to violate the terms of the lease.
  2. Host a Yard Sale.   If you’re like most people, you have plenty of valuables that you don’t use very regularly.  Be sure to get a permit from your town hall, as many locations require one.
  3. Sell Your Stuff on Craigslist.  If you prefer to not host a yard sale, Craigslist has an enormous market for items like TVs and furniture.  Including high quality photos of the items will increase demand for the product.  To maintain an extra level of privacy, you can meet in a neutral location to make the sale.
  4. Offer Services on Craigslist.  If you have a marketable skill or the free time to do basic work, Craigslist has a booming market for these as well.  Some examples in the “services” section include: computer assistance, financial help, pet services, landscaping, and moving.  This list is not all inclusive, and you can advertise many other services as well.
  5. Sign up for Medical Experiments.  Some clinical trials will pay subjects to help test the safety and efficacy of medical treatments before they are approved for the general public.  Of course, there is the risk of detrimental health effects from these unproven treatments, but plenty are available if you are wiling.  For example, searching for open studies in Massachusetts on www.clinicaltrials.gov finds 2,742 open studies as of the date of this writing.  If you’re fortunate enough to find a local study for which you qualify and are willing to take the risk, many experiments require a series of well-paid visits, making this one of the lowest stress examples of how to make extra money.
  6. Donate Sperm or Eggs.  You can earn  consistent money donating sperm at a local sperm bank.   For example, the Seattle sperm bank will accept donations (after a screening process) from healthy men aged 18-39 two to three times per week and give $60 per donation, which would result in $180 per week.  For females, the market for egg donation is more lucrative per visit.  For example, the Reproductive Science Center of New England starts compensation at $6,000 for the first donation, and will allow six donations total, which would give donors over $36,000 if they were to choose to donate the maximum amount.  Of course, ethical considerations apply in both types of donations.
  7. Donate Plasma From Your Blood.  Patients with certain medical conditions and those undergoing certain procedures benefit from plasma donations.  If interested, the kind folks at www.donatingplasma.org have a directory to find the nearest donation center.  One such example is ADMA BioCenters in the Atlanta, GA area, which allows up to two donations per week, which can earn you up to $250 per month.
  8. Sell Your Hair.  The web has multiple hair auction websites where you can sell yours if in a bind.  One example is www.hairsellon.com, where sets of hair frequently sell for hundreds of dollars.
  9. Sell Your Scrap Metal.  Any metal item you throw away may have a market value.  For example, the folks at 1-800-GOT-SCRAP advertise that “anything made from metal is game.”  They offer a service to find the the scrap yard nearest to you, and even offer pickups for a fee as well.
  10. Rent Your Parking Space.  If you own spots in an area where parking spaces may be in short supply (such as in a city, near the beach, or near a stadium), you can put your space on the market via Craigslist or with a display during applicable events.

How to Make Money Online/From Home 

How to Make Money Online

How to Make Money Online

  1. Sell Your Stuff on eBay.  Instead of throwing away old items, you can make money online with eBay.  For example, at the time of this writing, we foundan example of a used, three year old 40 inch LED HDTV that sold for $258.89.  Even used clothing, items commonly thrown away, have a market on eBay.  Especially if you own expensive items you don’t want anymore, this is one of the best examples of how to make quick money.
  2. Amazon Mechanical Turk.  You can make money from amazon by working on human intelligence tasks (HITs), or items that computers cannot do by themselves.  For example, one job request after doing a simple search was to watch The Shawshank Redemption and write a review for $26.73.
  3. Participate in Surveys.  It can be dull, but websites such as www.cashcrate.com will pay you for your opinion on various topics–$0.80 for each daily survey you complete and more for surveys targeted to your demographic.
  4. Work as an Online Customer Service Rep.  If you’ve ever worked with a customer service rep who chatted with you via computer, you may be surprised to learn there’s a chance that person was working from home.  For example, www.talk2rep.com will help connect you with a company where you can work completely from home via chat as a customer service representative.
  5. Publish Articles.  If you are a talented writer, multiple websites will pay you to publish with them.  Some examples include Associated Content, Helium, and Demand Studios.  From site to site in this industry, the business models vary, but the more traffic your article gets, the more you will typically earn.
  6. Sell Your Designs on CafePress.  If you are a creative person, www.cafepress.com has a business that may appeal to you.  You create and upload a design, CafePress sells your design on products (clothes, drinking glasses, iPhone accessories, pillows, etc.), and you make a commission.  Really cool site!
  7. Sell Crafts.  If you have an artistic or crafty talent, Etsy.com is an expansive marketplace online for such a skill.  Etsy describes itself as “a marketplace where people around the world connect to buy and sell unique goods.”  You can list each item for $0.20 and Etsy will take a 3.5% commission of your sale.

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Best Personal Finance App

The award for best personal finance app goes to: Check (formerly Pageonce).  Below are its incredibly useful features that will make your life easier.

Live Monitoring of Cash and Investment Balances

When you first set up the app, you link all of your accounts with it.  It takes a few minutes, but it’s well worth it.  Once it is linked, it keeps tabs on your cash and investment balances (even from several different financial institutions), so you don’t have to.  This is much more convenient than logging into multiple accounts.

Reminders When Bills are Due

If you don’t use automatic bill payments, this feature why you must have this personal finance app.  One of the most common hits to a credit score is paying bills late or not at all.  Check reminds you via email and within the app itself so you never have to miss a bill again.

Pay Bills Inside the App

Best Personal Finance App

Check Screenshot

Once the app reminds you of a bill, an added convenience is the ability to pay it within Check itself without having to log onto the website of the company whose bill you will be paying.  Payments from your bank account are free.  This feature alone puts Check up there with the best personal finance apps.  Using a credit or debit card incurs a fee, however.

Reminders when Funds are Low/Credit Limits Near

Again simplifying your life, especially if you have money spread out at a few institutions, the app will notify you if funds are low.  You can then transfer funds and avoid getting hit with an overdraft fee.  Additionally, the app will notify you if a credit limit is getting near.  This will also help with your credit score, as an excessive ratio of credit used to credit available is also a hit on a credit score.

User-Friendly Reports

You can track your spending habits easily and see if you need to cut back in certain areas in this section.  Check has reports for bills history, all your transactions, payment history, and where your money’s going.  A common reaction of consumers after seeing such data is to be in shock at how much of their spending is going toward the small stuff rather than large purchases.  Very useful.

Monitor Your Credit Score

For $6.99 per month, you can enroll in Check Credit Guard.  This will entitle you to monthly credit reports from Experian, real-time fraud alerts, and $25,000 identity theft insurance.

Competitive Offers

Inside this tab, you will find offers where you can compare the most competitive rates on credit cards, insurance, mortgages, loans, brokerage accounts, savings accounts, and coupons for popular chains.  Very cool.

The Bottom Line

Check is awesome and will make you fall in love with personal finance apps.  Once set up, you’ll see your cumulative balances and bills all in one place, giving convenience and peace of mind.  If you’re looking for the best personal finance app for android, iPhone, iPad, Blackberry, or Windows Phone, Check is an essential download.

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Gap Trading Explained With Gap Trading Strategies

Earnings Announcements Consistently Cause Massive Trading Gaps

A trading gap occurs when there is a sizable difference between the closing price and opening price the next trading day of a stock.  It often occurs due to an earnings announcement after hours.  These create excellent gap trading opportunities.

For example, on December 3, 2013, the biggest % price gainer on the New York Stock Exchange was Rex American Resources (NYSE: REX), an ethanol company.  The headlines for that morning read, “REX American Resources Fiscal Third Quarter Diluted EPS Rise to $1.21 as Net Income Increases to $9.9 Million from $0.4 Million,” and the price jumped.  This was among the best stocks to trade the opening gap due to its earnings release.

Gap Trading

Rex American Resources (NYSE: REX) Has a Trading Gap After Earnings Announcement

Research Shows Value Stocks React Better to Earnings Announcements

If a company’s earnings beat analysts estimates, it’s called a positive earnings surprise.  If the company’s earnings fall short of analysts estimates, it’s called a negative earnings surprise.  The evidence that value stocks beat growth stocks after earnings surprises is robust.  Here, we’ll cite three studies showing that value stocks react better to earnings announcements than growth stocks do, making them excellent gap trading stocks.

Stocks to Watch

Excellent Short Term Stock Trading Guide

In their 1999 paper “Earnings Surprises, Growth Expectations, and Stock Returns,” University Of Michigan accounting professors Douglas Skinner and Richard Sloan conclude that, “It is well-established that the realized returns of growth stocks have been low relative to other stocks.  We show that this phenomenon is explained by a large and asymmetric response to negative earnings surprises for growth stocks.”

In a similar 2009 study, “When Two Anomalies meet: Post-Earnings-Announcement Drift and Value-Glamour Anomaly,” Zhipeng Yan and Yan Zhao find that, “…glamour stocks exhibit much larger negative drifts following negative earnings…while value stocks exhibit much larger positive drifts following positive earnings surprises…”

In a 2011 paper by the Brandes Institute “The Role of Expectations in Value and Glamour Stock Returns,” they write, “What happens when value and glamour stocks miss earnings expectation targets?  Although, as expected, prices for glamour stocks have historically fallen, prices for value stocks have gone up.”  Again, value wins.

First Gap Trading Strategy With Fidelity’s Free Stock Screener – Low P/E Stocks

First, go to Fidelity’s free stock screener.  If you’re interested in, say, penny stocks to watch, set the price under your cutoff (definition of penny stock varies).  If you’re interested in stocks to watch this week, select 1 week for “earnings announcement: days until.”  If researching tech stocks to watch, select this under “industry.”  Most importantly, screen for value stocks by using P/E (Price/TTM Earnings) and picking the lowest 20 % in the market (lowest decile outperforms the other four deciles in the studies).  Buy shortly before the closing bell.  If you are unable to monitor the stock price the next day, I recommend using a stop loss to protect against unfavorable earnings announcements.

Gap Trading Strategies

Gap Trading Strategy Using Fidelity Stock Screener – Low P/E Value Stocks Announcing Earnings

Second Gap Trading Strategy With Fidelity’s Free Stock Screener – Low P/E Stocks With Beaten Down Prices

This is the same as the first method, except it adds the lowest 20% price performance in the market in the 5 days leading up to the earnings announcement.  With poor price performance, it shows investors don’t have high hopes for the earnings, adding another contrarian twist to the value stock method.

Gap Trading Strategy

Trading the Gap With Fidelity’s Screener Adding Price Performance

Final Thoughts on Gap Trading Strategies

Both of these gap trading strategies take advantage of Warren Buffet’s famous method of, ”Be fearful when others are greedy, and be greedy when others are fearful.”  These stocks are beaten down because people don’t have high hopes for them.  If, however, a positive earnings surprise occurs, a nice price increase should occur to give the stock a more fair market price.  If the earnings aren’t very good, the stock shouldn’t fall as much as growth stocks would since nobody expected much anyway.

Only do this method if you can afford to have massive fluctuations and surprises, as this is an incredibly risky technique.  Don’t expect to win every time.  If you do enjoy exciting trading methods such as this, however, the research is unanimous that value stocks react better than growth stocks to earnings announcements.

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References

Institute, Brandes, The Role of Expectations in Value and Glamour Stock Returns (June 1, 2011). Journal of Behavioral Finance, 2011; Brandes Institute Research Paper No. 03-2011. Available at SSRN: http://ssrn.com/abstract=1905645

Skinner, Douglas J. and Sloan, Richard G., Earnings Surprises, Growth Expectations, and Stock Returns: Don’t Let an Earnings Torpedo Sink Your Portfolio (July 1999). Available at SSRN: http://ssrn.com/abstract=172060 or http://dx.doi.org/10.2139/ssrn.172060

Yan, Zhipeng and Zhao, Yan, When Two Anomalies Meet: The Post – Earnings Announcement Drift and the Value – Glamour Anomaly (November 22, 2011). Financial Analysts Journal, Vol. 67, No. 6, 2011. Available at SSRN: http://ssrn.com/abstract=1963308