Empowering Ladies in the Stock Market

New Year’s Resolution – The Rule of 72

Make it your New Year’s Resolution for 2011 to learn and take full advantage of the Rule of 72. Compound interest is by far one of the most powerful principles that can help you reach your financial goals.

 

Ladies, I want to demonstrate to you a simple example of compound interest and how powerful this concept is. Imagine the following scenario. 

You are providing a one-time service for someone that lasts one month, and
that customer gives you a choice of two options of payment.

Here are the two options:

1) At the end of your service, the customer pays you $100,000 lump sum payment.  Not bad, eh?  OR
2) At the end of your service, the customer pays you $1 the first day, and shows you a technique whereby you can double this amount everyday for the next 31 days.

Which would you choose?

Well, let’s look at Option #1 first since it is the easiest – at the end of your 31 days, assuming you did not spend any of the money yet, you would have $100,000.  And I must admit, that sounds pretty good, especially considering the fact that the average person will not make that in a year, let alone one month.

 

Now, let’s look at Option #2.  Do me (and yourself) a favor and get out a calculator.  And if you don’t have one, get out your cell phone.  I’ll bet you have a calculator on it that you can use.  To recap, you are given $1 the first day and then it doubles everyday for the next 31 days.  So, on day 2, your $1 becomes $2, on day 3, your $2 becomes $4, on day 4, your $4 becomes $8, and so on.

If you start with $1 and multiply it by 2 and take its result and multiply by 2, and so on for 31 days, what do you get?  Well, here’s what I got…….drum roll please……$1 billion, 73 million, 741 thousand, and 824.  YES! I said billion with a “b.”  I don’t know about you, but that’s pretty phenomenal….the POWER of compound interest.

 

Now, which option would you choose?  Option 2 of course!

 

Results:

1) 31 days - $100,000
2) 31 days - $1,073,741,824


Rule of 72

The Rule of 72 applies here as well.  What is the Rule of 72?  If you divide 72 by the annual interest rate, the result is how many years it would take your one time investment to double.  That is the power of compound interest.  For instance, an initial one-time investment of $10,000 at a rate of return of 12% would take 6 years to double into $20,000.

 

Now, returning to the first scenario, where you have the two payment options.  The second option entailed learning a technique where you could double your money every day.  And yes, I must admit, this sounds pretty far-fetched.  Basically, you would need to make 100% profit (or double your investment) every day for 31 consecutive days in order to become a billionaire, with a “b.”  Well, what if I could show you a technique that may take a little longer, say you could double your investment in a year?  And before you say “that’s impossible” I want you to know that I have done it before.  How you might ask?  By trading in the stock market. 

 

All the best to you in the New Year!

 

Aneshia

Growing a Sharebuilder Account with ING

 

One of the ladies in our community sent me an e-mail. She was setting up an ING account with Sharebuilder and she wanted to know how to grow it quickly.

 

 

My Response

One of the techniques I have used for growing my retirement account quickly with minimal risk is called “Writing Covered Calls.”

 

There are two steps to this profitable strategy.

 

1)    Buy at least 100 shares of a stock or ETF (Exchange Traded Fund). The stock or ETF you choose must be optionable. If you are unsure, check the Chicago Board Options Exchange (www.cboe.com).

 

2)    Sell a call option on the stock or ETF that you now own. Options are sold in contracts. One contract allows you to control 100 shares of stock or ETF. That is why you must own at least 100 shares of the security that you want to sell the call option on.

 

 

The profit is made once you have sold the call option on the stock or ETF that you already own. When you sell the call option, the buyer of the call option pays you a premium, which you will see show up in your account the following day. Unlike stocks or ETFs, options have expiration dates. When I use this strategy, I typically sell a call option with an expiration date of less than 30 days out. For example, a couple days ago on September 1, 2010 I sold a September 2010 call option. Because options expire on the 3^rd Friday of their expiration month, this call option will expire on September 17, 2010.

 

So, I locked in 6% profit in 16 days. Banks don’t pay that kind of interest in a year, let alone 16 days!

 

The next critical day is the expiration date on the option. In my case, on September 17, 2010, one of the two following scenarios will occur:

 

1)    The call option will expire worthless.

 

2)    The buyer of the call option will choose to exercise the option.

 

The good news is that I will be profitable with either scenario. I have already locked in 6% profit in 16 days. I want to emphasize that this is set in stone regardless of which scenario occurs.

 

Scenario 1:

 

If the market price of the stock/ETF is less than the strike price of the call option, then the call option will expire worthless. The owner of the call option can buy the stock/ETF in the market for less, so there is no logical reason to exercise an option that would force the owner to buy a stock/ETF at the strike price, because in this case, the strike price is a higher price. This is a great scenario to have, because I still own the stock/ETF. So now, I can turn around and sell another call option that expires the following month, locking in another profit in less than 30 days.

 

 

Scenario 2:

 

If the market price of the stock/ETF is greater than the strike price of the call option, then the buyer of the call option will likely choose to exercise the option. This is also known as getting “called out.” When I sold the call option a couple of days ago, in exchange for the premium (6% profit in 16 days), I gave the buyer of the call option the right to control my stock/ETF. The buyer now has the right to buy my stock from me at a particular price, known as the strike price. So, when September 17, 2010 arrives, if the market price of the stock/ETF is greater than the strike price of the call option, the buyer will likely exercise their option. Why? Because they can buy the stock from me at the strike price (fixed based on the call option), and immediately sell it in the market for a higher price. In this scenario, I will still make a profit, in addition to the 6% I already made. Even though I have to sell my stock/ETF because I will be called out, a couple of days ago I made sure to sell a call option with a strike price higher than what I originally paid for the stock/ETF.

 

 

Writing Covered Calls is an awesome strategy. However, you want to make sure that you perform the technique correctly. If you buy the stock/ETF at the wrong time, or sell the wrong call option, I promise you WILL lose money. Ultimately, education is the key. You have to know when is the right time to purchase the stock/ETF, the right time to sell the call option, and most importantly which call option to sell so that you lock in your profit. I have coached many ladies on this technique. Please contact me if you want to learn more about this profitable investment strategy.

 

All the best!!

True/False – Common Myths About The Stock Market – Myth #3

In the past 12 years of investing and trading in the stock market, I have learned a lot from my conversations with other women. For one, I have discovered many misconceptions about the stock market. In the interest of personal growth, I am open to learning new things.  So, once I’ve discovered that what I used to think about a particular topic is based on insufficient information, I find myself opening up to a new perspective.

 

So, how do some women allow their mind to take them out of the financial game? Well, while our mind can be extremely powerful, its desire for security and resistance to change can also keep us from stepping out of the box to accomplish our goals and dreams.

 

Stock Market Myth #3

Trading in the stock market is too risky.

 

I hear this one ALL the time, especially from ladies who had money in the markets in 2000 after the dot com bust or in the fall of 2008.  And I was one of them. I lost money in the markets during both of these periods too.  But, the most important step I had to take was to determine how I could not repeat the same mistake again. I had to take some responsibility for my situation, so that I could learn from it and make wiser financial choices in the future. Something in me said that I could still make money in the stock market, AND that the key to doing so was training.  Indeed what I learned from training with my mentor between 2000 and 2008 helped me to deal with the substantial drops in the market that occurred in the fall of 2008.

 

Risk management is extremely important when investing in any business.  That includes real estate, any traditional business venture such as a restaurant or clothing store, and the stock market. As with any business, there are no guarantees in the stock market. I cannot stress enough the importance of having a clearly defined exit point BEFORE you even enter a trade.  And once you select this exit point, follow it.  Don’t make the #1 mistake of amateur investors – don’t be ruled by your emotions.  Invest and trade based on a proven system. This is how you will protect your investment. Your exit point is not just your profit goal (how much money do you want to make?). It is also the most you are willing to lose (risk). Letting go of a losing trade is a critical part of risk management.

 

No one profits on every trade, because if they did they would essentially own the stock market. Even with the system I use, it would be impossible for me to be profitable on every trade because I would have to be right every time. I mentioned this in chapter 10 of my e-book “Wealth Wisdom for Ladies” entitled “You Can Be Right or You Can Be Rich.” Investing based on a system mitigates the risk, but it will never eliminate it. For me, 20% is the most I will risk in an investment before I sell the stock or ETF and cut my losses. This is how I live to trade and invest another day.

 

Ladies, what are your thoughts about risk?

 

True/False – Common Myths About The Stock Market – Myth #2

In the past 12 years of investing and trading in the stock market, I have learned a lot from my conversations with other women. For one, I have discovered many misconceptions about the stock market. In the interest of personal growth, I am open to learning new things.  So, once I’ve discovered that what I used to think about a particular topic is based on insufficient information, I find myself opening up to a new perspective.

 

So, how do some women allow their mind to take them out of the financial game? Well, while our mind can be extremely powerful, its desire for security and resistance to change can also keep us from stepping out of the box to accomplish our goals and dreams.

 

Stock Market Myth #2
It takes a lot of money to start investing.

 

I hear this one a lot. Many ladies believe that it takes several thousands of dollars to begin investing or trading in the stock market. “It takes money to make money” is a common saying most of us have heard before. Truth be told, you can get started purchasing stocks and even trading stock options for $500 or less. There are resources you can use to get started analyzing stocks for FREE. I will also show you an online broker website where you can trade and invest for minimal commissions and NO required minimum account balances. I know this because this is how I got started.

 

In my last post “Stock Market Myth #1” I mentioned the importance of trading and investing based on a systematic approach. One of the great things about the systematic approach that I began using seven years ago is that I was able to test it out without any financial commitment. How? I used paper trading. When I first learned about this system from my mentor I was skeptical. Skepticism is healthy. I don’t take anyone else’s word for anything, even though my mentor had been trading and investing in the stock market for over 20 years. I want to see for myself that what they are saying is true. Paper trading allowed me to do this. I recorded the stock price at my entry and exit points, along with my profit (or loss) at my exit point. And once I consistently had 7 out of 10 profitable trades, I started using my own money.