Cryptocurrency: Value Without “Value”

Yes, that’s right. The title may have a few of you baffled. Why is the second value written within quotations? That’s because value is inherently subjective. We all view things differently, each with varying degrees of importance. Currency is the one true standard that we use to be are able to assign a value to things. Before currency was established, barter was the means of trade. That had many problems in itself, chief of which is the accuracy of what you’re trading for what you’re getting.

Currencies are regulated and managed by the governing body of any community. This central authority regulates the ebb and flow of money and it also monitors the value of the currency with respect to currencies from other countries. This requires another governing body to determine which currency has more value than another — that is in fact the whole premise that foreign exchange is built upon.

Of course, we aren’t here to discuss the foreign exchange. Rather, we’re going to discuss something that’s been quite disruptive in recent years — cryptocurrency.
What is it, how is it used, and most importantly, how do cryptocurrencies have value?

Cryptocurrency is a form of electronic currency that was initially introduced in the form of Bitcoin by Satoshi Nakamori. Satoshi, as a matter of fact, did not intend to create cryptocurrency. At the time of this serendipity, Satoshi actually meant to create an online cash system.

But the important premise of cryptocurrency is that it presents an alternative currency that’s transparent and secure at the same time. And this was achieved through decentralization and blockchain. The security of cryptocurrencies actually lies in its transparency, which are two concepts that typically don’t mix — and yet, here we are.

Cryptocurrencies are used as a form of electronic currency, but really, the hype surrounding it primarily revolves around the volatility of the currency, where its value can easily soar up to 10 times its initial value, but it also has the risk of dropping just as much in value.

And while a transparent, decentralized system may sound like it’s just asking to be hacked, that couldn’t be further from the truth. This is because of blockchain, a security process that protects cryptocurrencies by allowing each member of the network (a node) to access the blockchain (or master ledger), which is both unalterable and permanent. Basically, whenever a transaction is conducted, a node is assigned to verify the transaction. When the process is verified, the updated data is then added to the blockchain, which, as we established earlier, is unalterable and permanent. Each member of the network is then able to view this updated information and in turn, update their own ledgers to match the master ledger. This way, any inconsistency is easily seen and can easily be singled out.

Now, there are a lot of factors that influence the value of cryptocurrencies, and these are the same factors that influence the value of just about anything. The two factors that have the most influence in this case are Public Perception and Supply/Demand.

The fact that cryptocurrencies are decentralized and secure is enough to raise the inquisitiveness of the general public, and as a general rule, anything that raises curiosity on such a scale is bound to have a high demand for it. Couple that with a limited supply of just 21 million Bitcoins, for example, and you’ve got the basic recipe for a high-value item.

But that’s just the basics — the link provided above is the full and specialized explanation of cryptocurrency value. And I’m speaking of the totality of the cryptocurrency value here. The security, transparency, and the limited supply all contribute to the inherent value of cryptocurrency. And while some governments are slowly recognizing cryptocurrencies as a legitimate form of currency, most governments would still disregard its value.

Really Common Money Mistakes Way Too Many People Make

Most people end up simply not having enough money, no matter what they do or how much they earn. The truth is that it is really simple to lose cash without knowing where it goes. Money mistakes are really easy to make, with those listed below happening so much more often than what you might think.

Credit Instead Of Cash

Those that use credit cards normally spend more than when cash is used. If credit is utilized to purchase anything and you then do not pay off the balance, even more is spent without realizing that this is the case. The best thing you can do is to shop with the use of cash instead of credit. The credit card is not used so debt risk is reduced. Also, impulse buying becomes less common.

Making Just Minimum CC Payments

When you have a high credit card debt and you just make the minimum monthly payment you end up repaying with a lot of interest. Remember that paying back your credit card should be a priority. This is not like dealing with a child custody lawyer when you just want to make sure you pay the least you could. Interest rates are much higher than what you might think at the moment so do be sure that you pay off your credit cards as soon as you can. This can save you thousands of dollars on the long run.

Buying Only Brand New Cars

If we look at statistics in Canada, the average car bought is around $23,000. Median income in the country is around $40,000. Spending around half of the income for a car every 3 years would immediately lower a person’s income.

People think they will get the most value from the car if they buy it new and then sell it. Unfortunately, the average car will lose around 15% value every single year during the first 5 years. Expenses then just get higher when thinking about gas, insurance and maintenance. Buying quality used cars removes the effect of depreciation.

Expensive Debt Carrying

For way too many people it is completely normal to be in debt as they always tend to owe something on overdrafts, credit lines or credit cards. Also, there are many that will take out second mortgages or extra loans from a financial company with the purpose of consolidating debt or when having to deal with some unexpected expenses. Unfortunately, such debt forms are very expensive. When you just pay the interest you end up paying up to 30% more. Then, we need to deal with principle payments so the debts will quickly eat up the disposable income one has.

Not Affording The Home You Live In

While it is a good idea to pay money down for a home you would eventually own instead of paying rent, it is not the best solution in all cases. People tend to assume that as they can afford to pay rent of $1,000 per month, they can afford mortgages of the same value. That is not correct. Just 40% of the rental payment should go towards your own personal home. Housing expenses do add up and you should factor them in at all times.

10 Tips to Get Started with Penny Stocks

If you’re interested in dipping your toes into the world of penny stocks, here is a rundown of the 10 essential tips to help you get started.

Run a paper portfolio.

This is a strategy used by fund managers to test out a new portfolio before they launch it. It’s quite similar to picking a fantasy football team. You put up an imaginary amount of money to play with, pick the kind of stocks you would consider trading, take note of which ones and when you’d have bought and sold and at what prices, and then wait to find out how your investments perform. There are a number of trading platforms that let you do this with features like a demo account of a virtual portfolio.

Learn from your Mistakes

As you start trading with real money, it’s crucial to keep a record of all the trades that worked, which ones didn’t, in order to become more successful in the future.

You don’t need to Necessarily Buy New Companies that Don’t Have a Track record

It’s better to look for companies that are cheap perhaps because they have hit a rough patch or are restructuring, because you might be able to make a decent amount in profits when the business recovers.

Find a Good Broker/Platform

Make sure that you broker offers a rich choice of stocks. In case you want to trade individual shares, keep in mind that fees can rack up rather quickly. Be sure to compare the charges across different brokers and find one with a cap on monthly trading costs or low fees per trade.

Avoid Unnecessarily Trading In and Out

This will certainly increase the fees charged, which can significantly erode your gains.

Do Good Research

Look for an experienced mentor who’d be willing to share their knowledge. Go through the various DIY penny stocks investing publications as well as the financial press, making sure that they are reputable sources. It’s fairly common for some unscrupulous people to use misleading information to talk up the share price of a company, before dumping their shares at a profit.

Quality Companies are Better Than Cheap Companies

As a penny stock trader, you risk getting caught out by value traps and boiler room scams if you fail to do good research. A company needs to be fundamentally a good business if it’s to have a good chance of performing well in the future. If a stock is cheap, ask yourself, is it because it’s a new company, a recovery story, or does it mean the company has little intrinsic value? Gold for instance has intrinsic value and that’s why the top gold penny stocks are well worth looking into.

Spread your Risk

Never try to pull big wins by piling all your available cash on a stock you have a hunch or heard is headed for greatness. Having smaller investments in a wide range of companies can lower your potential for losses and improve your chances of generating a good return.

Admittedly, your liquidity will be much lower than the main market, since there are fewer players in the penny stocks market. You should ideally look for companies with a few hundred thousand shares traded daily, to make sure that you can trade when you want to.

Don’t Overpay

If you set a buy limit, stick to it. It’s very easy to be carried away, which can end up costing you more for the stock than it’s worth. when your stock is doing well, don’t be afraid to take some profits, but don’t settle for less than the best possible price when you want to sell.

Be Realistic

Remember that penny stock trading is not a get-rich-quick scheme, though some people will claim to have the ‘secret sauce’ to make millions out of it. However, you can have lots of fun learning how to trade penny stocks, and even if you’ll undoubtedly get some losses, you can as well get lucky and land a “ten bagger” along the way.

3 Times Emergency Funds Can Save the Day

Dave Ramsey talks a lot about emergency funds, and it’s a smart choice to start now if you don’t have a fund already in place. An emergency fund has the ability to save a homeowner’s home, put food on the table and even support a family in times of need.

Baby steps need to be taken for an emergency fund to grow.

Experts recommend starting with $1,000. Emergency funds that are fully funded will be able to cover three to six months of expenses. A person that spends $3,000 on expenses per month would then need to have $9,000 – $18,000 in an emergency fund.

Debt should be paid off first, which is why the starting emergency fund of $1,000 is recommended. Debt in this case often refers to high-interest debt, such as credit cards, and not a mortgage, which is often impossible to satisfy quickly.

Emergency funds are used in times of desperation, including:

1. Emergency Home Repairs

Home repairs need to be made, especially when they’re structural in nature. A homeowner cannot let a plumbing or sewer issue continue without repair due to risks of severe water damage.

If a sewer camera inspection reveals that a sewer main problem exists, the repair averages $2,474 in costs.

Roofing issues leading to a complete replacement averages $7,200. Roofs on larger homes are typically costlier. An emergency fund can save the integrity of a home, a person’s biggest investment.

2. Firings or Lay-offs

Corporations are closing, workers are being laid off and there’s always a risk that a person’s job may be replaced with automation. Emergency funds help to fund expenses during these rough times.

Canadian households are far more prepared than American households for emergencies.

Canadians have, on average, $41,000 in emergency fund savings, with 24% responding having “barely anything.” Around 56% had less than $10,000 in their emergency funds. Americans are worse off. More than half of Americans have less than $1,000 in savings.

The average job search takes 6 weeks, and an emergency fund can help ease the hardships by ensuring mortgages and bills are paid during this time.

3. Transportation Repairs and Costs

People have to get to work, and for many, this means driving to and from work daily. Subways, trains and buses may be an option, but the expense is often too much for a worker to afford.

Car repairs need to be made, and some vehicles may need to be replaced.

If the family car breaks down, a properly funded emergency fund can help a person keep getting to work, make the proper repairs and not risk their job in the process.

Emergency funds are a lifestyle investment, and small changes can lead to padding an emergency fund properly. Experts suggest accounting for home repairs monthly in expenses so that the funds can be placed in an emergency fund.

Emergency funds, when used, need to be replenished to match the person’s lifestyle.

Once an emergency fund is properly funded, investing and retirement planning will be the focus if debt has been paid off.

4 Questions to Ask Before Hiring a Financial Advisor

Financial advisors can have many specialties, but their main objective is to help their clients reach their financial goals through investments. The goals that a person has will differ. Many clients are concerned about retirement, while others want to make sure that they have enough money to help their children through college.

But financial advisors are also in charge of their clients’ money, often resulting in fraud.

One financial advisor was just charged with spending $900,000 of his client’s money on country clubs and cars. An Ottawa financial advisor stole $2.8 million from 19 investors and was sentenced to seven years in prison.

Avoiding these scams requires a bit of research into your financial advisor and asking the right questions.

1. Ask for Credentials

The first step in hiring a financial advisor is to ask for their credentials. You want to make sure that the individual is certified, and this means holding one of the following:

  • CFP (certified financial planner)
  • ChFC (chartered financial consultant)

You can even go as far as asking what value the certification has created for the advisor’s clients.

2. Is a Team Going to Help?

Financial advisors can hold many specialties, and it’s always good to work with an advisor who is part of a team. Jeff may be the best suited for retirement planning while Jill is known for helping investors increase their stock portfolios.

You’ll also benefit from working with a financial advisor that has an accountant on staff.

The accountant can help with tax planning and preparation so that your investments are as profitable as possible.

3. Dig Into the Advisor’s Past

The Internet puts the power to research anyone at your fingertips. If you’re going to trust someone with your future, you need to dig into the person’s history and company to ensure that they’re a good fit for you.

And there are a lot of ways to research a financial advisor:

  • Conduct a background check looking for fraud or anything suspect
  • Check to make sure that they’re truly certified
  • Search Google for complaints against the advisor
  • Read reviews online about the advisor and his or her company

You can avoid a lot of issues by taking an hour or two to just research the advisor that you plan on working with.

4. How is the Advisor Compensated?

You’ll need to pay for the financial advisor’s time, and this means that you’ll have to ask how the financial advisor is compensated. There are many ways a professional in this field might be compensated:

  • Commission based on the products they sell
  • Hourly rates
  • Retainer

An issue with commission-based payouts is that the financial advisor has an incentive to sell you on what makes them the most money. You’ll find this to be true when you go to an advisor to help you save for your child’s education and the first thing they offer you is an insurance product.

Financial advisors work for you, and since they’re in charge of your money and investments, it’s important to ask as many questions as possible before agreeing to work with them.

How Safe is Cloud Mining

Whether Bitcoin mining is profitable is not an easy question to answer. With debate that’s almost as rancorous as the block size debate, one can infer that even after debating digital currency technicalities for months, there is just no general consensus on the profitability of cloud mining.

For those who are unaware, Cloud Mining is the process of Bitcoin mining utilizing remote servers with a shared pool of processing power owned by a Cloud Mining company. It may sound extremely foolproof, but cloud mining can become a bit of a mess given the concept’s rough start.

The stories of scamming are familiar ones: companies disappear with user funds, paying out early investors once new ones join, and making a run for it weeks later, which leads the average investor to avoid the standard year-long contracts.

Or the argument that Bitcoin is too volatile to start with, making the profits highly unpredictable. The investment required for personal bitcoin mining is risky on its own, so imagine that risk compounded when trusting an unlicensed and uninsured third party with your money.

Mr. Ben Hortman of cloud mining company Bet Capital LLC has weighed in on the subject of the risks and rewards involved, with these thoughts:

“The reality is this. Many large scale miners work very hard to get cheap electric rates. In fact these electricity rates can be worked down very low, sometimes under US$0.02/kWh. Now the average rate for a “decent” price in the USA is around US$0.08/kWh. But because big miners can leverage their capital in a way that can convince utilities to give them great rates, this allows them to pass on savings as well as profit to customers.”

There’s no denying it: Cloud mining is going through a rough start.

“Many users, after having a bad experience, have lost faith in the possibility of fair mining in the cloud, and thus all new projects are now greeted with a great deal of skepticism,” says Hortman.

This, however, could be good for entrepreneurs eager to plug the leaks in the outdated cloud mining model. To keep up with a consumer base that is more aware by the second, serious companies will need to become far more transparent and the companies that don’t keep up will fall like rotten apples off a tree.

The ability to differentiate between an honest cloud mining enterprise and one that is merely a come on for a Ponzi scam is to look closely at what commitments the company is asking for and their estimated rate of return. If they are pushing for a long term contract and making extravagant claims of enormous and immediate returns, it’s probably best to ignore their flummery.

The overall legality and regulation of Bitcoin cloud mining is still up for debate, making it  a continuing risky investment, but the technology behind most of the big financial companies is interesting, to say the least. While this is a very challenging time for legitimate cloud mining companies, it is very fascinating to see healthy competition acting as a driving force behind the development of digital currency mining as a legitimate and stable financial strategy for investors at all stages.


Should You Invest in Bitcoin?

Bitcoin has been considered to be the fastest-growing asset in 2017. This December, it has finally crossed the 10,000 USD threshold, which is a big feat. However, there are still a lot of speculations about a currency that you can mine almost magically.

On one hand, we have Governor Murat Cetinkaya of Turkey Central Bank and stock analyst Ronnie Moas backing Bitcoin. On the other, we have JPMorgan’s CEO Jamie Dimon and Themis Trading LLC passionately against a “fraud” currency. Who do you listen to?

Let’s explore the good and the bad of investing in Bitcoin.

The Rise in Popularity of Bitcoin

Bitcoin’s initial appeal is in its unregulated and anonymous nature. You can make intercontinental transactions without paying government-controlled tax. This has attracted a few investors at first. However, in eight years, financial experts’ interest in Bitcoin and other cryptocurrencies have increased and rightly so. Bitcoin is now trading at an all-time high. It started with -$9 and now it has reached $189,936.

Bitcoin, however, does not only attract financial leaders. It is also highly appealing to people whose earning and keeping currencies with high volatility. Since this cryptocurrency is not regulated by any government, it is not affected by the rise and fall of economies. Countries with low political and monetary stability can easily see the value of bitcoins.

Now, many businesses are using bitcoin, online and offline, as a form of payment for services and products. And the more useful bitcoins are, the more valuable they will be. In an analysis made by Howard Marks, Oaktree Capital Group co-chairman, Bitcoin’s value will rise to $4.5 trillion for gains of about 60x higher than today.

Bitcoin as a Bubble You Should Avoid

People are no stranger to economic bubbles. History has taught us a lot about them. There was the tulip bulb mania, the South Sea bubble, and the dotcom bubble. All of them has taught us to be wary of markets with a strong and irrational exuberance.

On the surface, Bitcoin does look like a bubble. The problem is that there’s no way of ascertaining it now. After all, you never know that you’re in a bubble until it pops. And when it pops, it’s already too late. Since bitcoin has no intrinsic value, it becomes more dangerous.

If Bitcoin really is a bubble, its value will continue to rise for another two to three years. Or it can crash within a month or so. What’s the most unlikely is for it to create a plateau and stay within its current price. Experts like Ray Dalio and Warren Buffet are certain that markets with unlimited upside are red flags.

Bitcoin as an Investment

The real question really is, “Is Bitcoin a good investment?” If you consider the facts, the answer is yes. Yes, Bitcoin is a good investment NOW. The problem is whether it is a good investment for the future. No one knows for sure when this cryptocurrency will hit the wall and fall to the floor. In fact, no one knows if it will even fall. The safest option is to invest a little in it. If it grows, good for you. If it falls, you will not be facing bankruptcy.

2018 Financial tips

Things are bound to change in 2018, and there will be many milestones we will reach, but it is important to set financial goals on an urgent basis so that you do not make a mess of the opportunities you’ll get in the coming years. With this, let us focus on the following financial tips that should be incorporated into your financial planning chart for 2018.

1. Spend less on luxuries and more on achieving your goals

As noted above, we are confident that you’ll get many opportunities in 2018 and if you want to make the most of the possibilities available, you should make sure that your funds are invested in the right direction. So, make sure that you do not spend unnecessarily on luxuries and invest most of your earnings on achieving your goals set for 2018 and the coming years.

2. Make sure that you improve your credit rating constantly

A Dent in your rating can be difficult to be repaired over a period, and so it is important to be sure that you make constant attempts to improve your credit rating and never let it fall. This is important because it will help you and get the necessary business loan if needed. We are not saying that you cannot survive without a business loan, but if there is an urgent need and the same can be satisfied by your credit rating, you should make sure that you maintain it. Another point to be seen is that a strong credit report will also help you in getting some of the best credit cards available for you.

3. Contribute to a retirement plan

It is important to contribute to a retirement plan and start with it as soon as possible. Remember that you can contribute a certain sum of your total earnings to a retirement fund and make sure that you do not have to be dependent on anyone post-retirement. With this, it is important to analyze the age of retirement even. Depending on your age, the amount to be contributed can be modified and thus, the desired level of satisfaction will be achieved.

4. Create an emergency fund

It is suggested to have an emergency fund that can help you get out of trouble when there is no other alternative available. Many people create an emergency fund but use it for their luxuries, and this is not the right thing to do. It is an emergency fund, and you should use that only in case of an emergency.

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Ed Rempel – Not Sold on ETF’s and Index Funds

Why I Won’t Own an Index Fund or ETF

 Skilled Fund Managers

Many investors are skeptical that there exist fund managers who have skill and who can beat the index over the long-term. Other investors believe that there are fund managers who have skill, but that it’s impossible to identify them ahead of time.

There are skilled fund managers that can be identified ahead of time. I know quite a few of them. You just have to look using the right criteria.

Identifying Skill

When looking at funds, many investors take an objective approach and study recent returns, look at ratings or statistics, or try to forecast which sectors will perform well.

Other kinds of skill evaluations are more subjective and rely on insider judgments, e.g., doctors assessing other doctors, or even actors judging performances of their peers.

The evaluation of a fund manager falls somewhere in between those two approaches, the objective and the subjective. I believe that, to find the best fund managers, you have to study them, not the fund.

Start by finding fund managers that have beaten their index over their career or long periods of time. This could be in more than one fund. They do not need to beat the index every year – just over time. Then study them to find out how they do it. Is it because of stock-picking skill?

Outperforming the appropriate indexes is just one factor in the criteria. Top fund managers are usually not trying to secretly follow the index–they’re more likely to have an effective style (like value investing), and have high “active share,” which means that they’re investing in a way that differs from the index; they also often have great experience and have their own money invested in the funds that they manage, i.e. “skin in the game”.

My All-Star Fund Managers

One of my special skills is identifying all-star fund managers — it’s essentially my main focus related to investments. I’ve found around 50 fund managers over the years who I would characterize as having superior skill, and all of them have beaten their index over long periods of time.

Most of those 50 managers are on my “watch list”. I own only a handful of those funds. Although I’m resistant to the idea of sharing statistics about my own personal investments, mostly because my investment style may not be suitable for every investor, I want to emphasize that it’s possible to identify skilled fund managers early and ahead of time.

Why I Will Never Own an ETF or Index Fund

I won’t ever own an ETF or an index fund because I’m not happy with below-index returns. I choose investments based on the fund managers–I want to invest with the Albert Einstein of investors, the absolute best. ETFs and index funds don’t have fund managers, so I’m not interested. The goal of investing is to obtain the highest long-term return after fees, and a skilled fund manager provides enough value to pay for those fees and more.

Above-Index Returns

There are really two options when you’re pursuing above-index returns: one, you can find yourself an all-star fund manager, or, second, you can choose a portfolio manager who’s paid by performance fee. When portfolio managers are paid by performance fee, they’re motivated to beat their index. If they don’t beat the index, the fees are similar to ETFs. If they do beat the index, the fee pays for itself.

Getting above-index returns is all about finding skill.