Personal Financial Management

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Financial Management 101


Life Insurance:

While working for a life and health insurance company, I learned that “buying term life insurance”, and “investing the remaining money” almost always makes more sense than buying what is called “whole life insurance”.

So, “buy term and invest the difference”.

What should one invest in?

There are a few possibilities:

1) Mutual Funds:

Investing in mutual funds can be much more profitable if one is a little more active than most in one’s choices of fund selections.

For example, most people allow their employer-designated financial advisor to choose funds for them.

Unfortunately, many financial advisors are really not that in-depth in their knowledge of mutual fund investing, and often simply choose funds based on the limited selection of funds they have knowledge of, or access to.

Choosing funds should take into account:

1) finding funds with relatively low expense ratios.

2) finding funds that combine:

– stable tenure of management


– above average rates of return (for funds in that risk category)

After conferring with colleagues of mine in the past, I learned that, when one does not have adequate financial advice, it is almost always best to invest in an American Stock Exchange index fund, that is called the “Standard & Poor’s (S&P) 500″.

That fund is a passively-managed fund that owns stock in the 500 largest corporations in the United States.

A portfolio that diversified, composed of stock in that many huge, United States based industrial or informational corporations, is usually a very safe investment.

Additionally, even though I do not believe that many of their labor and environmental practices overseas are acceptable, U.S. based corporations that invest in Chinese (and other East-Asian manufacturing nations) are often highly profitable, so if one has to temporarily sacrifice social ideals in order to earn some money, then those U.S. based corporations are often a good investment.

In the long term, multinational corporations are almost always going to give you the highest rates of return, as they are able to capitalize on ever-shifting politically-created labor-market gaps.

And as long as no workers (particularly children) get hurt, and their workforce is energetically optimistic about leaving the farms and entering the manufacturing sector of their nation’s economy, then investing in multinational corporations can be acceptable.

2) Stocks:

There are a few methods through which one can choose corporate stocks to invest in:

1) Finding stocks in companies that have a high degree of likelihood of increasing their sales (and thus, hopefully, their profitability).

2) Finding stocks that have the lowest Price to Earnings (P/E) ratios.


3) Finding stocks that exhibit buyers heavy interest, and are also included in one (or preferably both), of the previous 2 categories.

That being said, on a superficial basis (as of June 5, 2015), I would tentatively assume that:

Apple computer stock is probably overpriced (due to the hyped, and irrational, swarming demand for it’s stock).

And that companies like Samsung (which manufacture products similar to the iPhone and iPad) are probably more fairly priced.

With regard to real estate:

I think, as time goes on, that California real estate is going to represent a great investment, due to a few factors:

1) the climate here is great.

2) huge U.S. based multinational corporations are based here.


3) this state’s proximity to China, and other Asian manufacturing superpowers is highly beneficial for the mass-manufacture of the electronics products that are increasingly engineered here.

Water is the resource of concern here (as we are in a semi-desert environment), so choosing subdivisions to live in that have guaranteed water rights would probably be wise.

With regard to buying and selling businesses:

Business are to be valued the same way corporate stocks are valued, by imagining that they are “bonds”, with a fixed rate of return over the life of the investment.

For example, if one buys a corporate bond with a 5% fixed rate of return, over the life of the bond, then one can reasonably calculate the value of that bond using “present value” mathematical techniques.

To accurately price corporate stocks (or the underlying businesses they prove partial ownership of), one must imagine that the companies yearly profits will extend into the future in some sort of stable pattern, and then discount those future revenues into a present day value, discounted by the expected rate of inflation.

So, if you can expect a company to earn a 10% profit on the dollar amount of it’s net worth, year after year, for a reasonably assumed number of years, then you can then discount those anticipated future profits into a present day dollar amount (and then add all those values up), to arrive at a present day value of what that company is likely worth.

If the value of the sum total of all the future profits (after discounting for inflation) is greater than the current net worth of the company, then that company’s stock is worth more than it’s current market price, and thus, it represents a good investment.

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