Marketiva Investment Funds - Constantine

I was surprised today to see that 80% of my visitors coming from Google have keywords asking “How much interest on a million dollars”, or similar. I thought “how to get a million dollars” would be more popular.

Marketiva Corporation provides some investment funds for their customers. Even though there are few options, most of their funds perform really well. Here are the funds they provide and their interest for the past 12 months: Brasillion(53%), Yangtze(49%), Asiasset(35%), Indiamond(25%), Constantine(7%), Columbus(7%) and Nippon(7%).

For those of you who wanted to know how much interest you could get on a million dollars, I would say a safe bet would be 7% / year with Constantine. That is $70k interest.

Constantine aims to maintain a fixed interest by investing in safer investments, such as bonds, etc. For those of you who are adverse to risk, that is highly recommended. The other funds mentioned invest in stocks from regional markets such as Brazil, China, etc, and get higher profits, however they involve more risk.

How to Make Debt Your Best Friend

There is a taboo that debt is bad. That is WRONG.

Before you start attacking let me clarify: debt taken from bad consuming habits (buying more than you can afford) is bad. Debt taken to leverage profitable investments is your best friend.
When you leverage your investments you are also leveraging your profit, so the more debt you can get, the greatest it your profit will be.

Here is an example:

If you spend $200k to buy a house and rehab it, and then sell it for $220k, you are making $20k profit, which is 10% of your investment (20/200).

However if you use $20k to do a down payment for a $200k house and to pay for the rehab, you can later sell it for $220k. You are, again, making approximately $20k profit (you will pay some interest while doing that). This time, however, your profit is 100% (20/20).

The example above illustrates just 1 example where you can use debt to leverage your profits.

Please keep in mind that the same way that debt leverages potential profits, that also applies to potential losses.

What can developing nations can teach us about Personal Finance

I’ve recently come across a great post in getrichslowly.org. The idea of their blog seem to be pretty much the same as mine, however I admit I haven’t gone through it to confirm that.

The post I linked above points out a few things people from developing nations do that helps them save more money. While the article contains more information, I will highlight only two which are easier to implement in your day-to-day routine.

1. Driving to work: driving alone in your car to work is highly inefficient. Taking a bus or even using a motorbike is far cheaper. (Also a lot better for the environment)
2. Living with your parents: in developing nations it is socially acceptable to live with your parents if you are single. By doing so, you are saving a lot of housing costs.
   

What do you think about that? Would you be prepared to live with your parents longer to achieve financial freedom faster? Would you give up the comfort of driving to work to save on gas and car maintenance?

3 tips to make your time more productive

Rumor has that time is money, and I couldn’t agree more. Time is money because all wasted time could be spent making money, and therefore there is an opportunity cost of time associated with it.

In accordance to my blueprint on how to make a million dollars by saving monthly, this tip will help you to save time and, therefore, money.

• Audio books: Use the time you would be stuck in the traffic to listen to audio books and learn new things, especially things that will make you money. Recent researches show that average U.S. citizen wastes 1.1 hours per day driving. Use that time to learn something new! If you think you already know it all in your niche, try learning a new language, such as Chinese, which will probably be a superpower in 50 years time. Do that and you will increase your productive time in almost 7% (1.1/16, where 1.1 is the time you are gaining productivity and 16 is the amount of hours average person is awake per day).

• Information overflow: There is so much information in the internet that you could spend your whole life browsing and not have time to read it all. It is easy to fall for it and spend countless hours research a money making opportunity and never take action. It does not matter how much you know unless you ACT!

• Boring events: If you, for any reason, are required to waste some time in a boring event, such as a useless class, family gathering, etc, try using that time to be creative. Think new opportunities, analyze your current projects in light of improvement.

Just as an example, this article was written at 11,000 meters, while I am flying in my holidays.
This article may ultimately generate money since my blog makes me money through adsense.

Blog Project: My votes

As i said I took part in Blog Project Three. You can find my post about 3 things no one told you about web monetizing here, and the full list of contest participants here.

Here are my votes for best articles:

Top 3 Reasons Why You Have to Work from Home by Alfa

3 Costly Internet Business Mistakes to Avoid by John

My three best traffic generators by Johan

Good luck everyone!

How to travel for free: Quick arbitrage opportunity

Today I am travelling abroad and I will be away until next week, so please excuse me for the lack of articles.

While planning for my trip I have noticed a foreign currency exchange (Forex) arbitrage opportunity. I have checked exchange services in both my home town and my destination, to exchange my home currency into my destination currency, but the rates were to not very promising. It would be at least 8% more expensive to exchange using those services than interbank rate. (Foreign currency is valued at 8% higher price than interbank rate)

Most people would stop there and take that loss, however that can be converted into profit. I consulted my bank and they have ATM machines where I’m going, and their fee for the service is a $6 flat fee, and their rate is interbank rate.

I am going to withdraw the money needed for my holidays from an ATM at my destination and use it in my holidays, when I am about to come home I will withdraw all my remaining checking account balance, use an exchange service to exchange it to my local currency again and then deposit back into my bank account.

In summary: ATM withdrawal at Interbank rate + exchange it back to my local currency using a rate that is 8% better (8% more value) + deposit into my bank account. My profit will be 8% - $6 (fee).

If I had a fat enough balance I could travel for free doing that.

How to choose an investment fund based on the benchmark

I have previously discussed investment fund’s benchmarks however you need to understand how to use benchmarks to choose the right investment fund for you.

Here is a step by step:

1. Define your goal: You need to define if you want to protect your money from inflation, to secure your principal, to seek capital growth, etc
2. Define the risk you are willing to take: Do you accept to risk having negative return on investment? Do you accept risk of losing everything you invested?
3. Define the amount to invest: you need to define what you will invest upfront and how much you invest monthly (if any).
4. Define the estimated time you will keep the money invested.
5. Compare points 1, 2, 3 and 4 with the benchmark of the funds you have available: If you seek to protect your money from inflation, you want to have a benchmark that has strong relation to inflation, for example. You don’t want to go into a stock’s fund if you are not willing to accept negative return on investment or to have longer investment timeframes (2-3 years)
   

When you do that, you will have ruled out almost all funds, leaving you with few options. Simply compare the past performance and you will most likely know in what fund to invest.

Understanding Funds Benchmarking

Each time you are considering investing in an investment fund you should carefully go through past performance reports, as well as other resources such as investment strategy, top holdings, market outlook, in order make an informed decision. While you are doing so, you will often see performance comparisons with a Fund’s benchmark.

Benchmark is a standard by which something is evaluated or measured and, in the case of investment funds, it is an economic index by which the performance of the investment fund is evaluated. In simple words: if the fund outperforms the benchmark, it did well. If the fund underperforms the benchmark, it did not do well.

It is important to have benchmarks to keep the performance analysis less intuitive and more technical. A stock’s fund that has a 15% year return in the U.S. may be seen as good fund while the same performance in emerging countries may not be good. This happens because S&P 500 had a 13.6% high in 2006, while Brazilian stock exchange (IBovespa) had a high of 48.4%.
When I compared the fund performance with the respective stock index I used the index as the fund’s benchmark.

The image above is an example of Fund performance report. The red bar is the fund's actual performance in 2006, the middle grey bar is Benchmark 1's performance in 2006 and the right dark grey bar is Benchmark 2's performance in 2006. As you can see, the fund in question overperformed Benchmark 2 but underperformed Benchmark 1.

1 Million Dollars by Saving per Month

I was browsing around and found an interesting video from Brian Armstrong about how to calculate how much you need to save per month to make 1 million dollars at a certain age.

You may remember I did some estimates of savings in an earlier post, when you needed about 2 thousand per month in savings. The video’s calculation example comes up with a much smaller value (7 hundred). The reason behind it is because the time you will be saving that in the video is 25 years, and in my original calculation it is just 15 years.

Therefore, this only emphasizes how important it is to start early and to get the best interest rate possible in your investments.

Investment Funds – Let your money work for you

Ok I saved Money, now what? Let your money work for you.

You will need to invest it so your money will grow through compounded interest.

Here is how compounded interest works:
Startup investment: $1000; Interest: 10% per year. You get $1100 after 1 year, $1210 after 2, $1331 after 3, $1464.10 after 4. Please note that each year the amount earned is growing, because you also receive interest on previous profits (compounding).

This reasonably well known fact is what I call to let your money work for you: you will be making profit, which grows every year without any effort. Meanwhile you can focus into saving more money to speed up the process of achieving your financial freedom.

Just to give you an example of how powerful this mechanism is, when you owe money to a bank you pay compounded interests to your bank. That is how banks make their money!

The same banks that earn money from you also offer you the opportunity to do the same, by offering you investment funds products, savings accounts or even paying you interest on your checking account balance. Generally the interest paid in checking / savings accounts is smaller than the one from investment funds.

There is a wide range of different funds available in almost every bank in the world, however different funds are tailored for different risk profiles. For starters I suggest funds that try to keep a steady interest or, preferably, those that you know, beforehand, how much you are going to earn. This means, in practical terms, to stay away from investment funds where the underlying investment is stocks, index or futures. US Bond investment funds should be a good option, or simply finding a savings account which offers you a decent interest.

Eventually I will lay down a few funds available with detailed information about them, in a separate post.

More on Web Monetizing

After my rather premature start with web monetizing lets discuss it more in depth.

Web monetizing is simple: to make money from your website. To do that you will need a website, content, traffic and an advertising campaign. I will assume that you can take care of the website and content by yourself. Google Blogger may be a good place to start.

Once you have a website you will need people visiting it (a.k.a traffic). Brian Armstrong is currently running a marketing challenge targeted to get more people to visit your site which should be worth following.

For startup sites it may be quite difficult to get advertisers, however there are companies which provide such services. The most popular one is Google Adsense.

Darren Rowse has an excellent website on how to blog for money, where you can find a series of Adsense Tips for Bloggers.

3 Things no one told you about web monetizing

For those who were following my posts chronologically, this post may seem out of place, and it is. I am posting this now to join a competition in Daily Blog Tips .

There is a huge fuss everywhere on the internet about Web Monetizing, however there are costs associated with it that I was not able to find anywhere. This post discusses 3 major costs of web monetizing and how they can contribute for your website to incur in a LOSS, instead of making you money as intended. For the sake of simplicity all my examples will be based on a blog.

Opportunity cost is the cost of something in term of an opportunity forgone (and the benefits which could have been received from that opportunity), and a blog is full of them! Here are the top 3 opportunity costs for blogs:

1. Opportunity cost of capital – Regardless the size, a blog requires some spending in order to work. You need an internet connection, a computer, webhosting, domain name, advertising budget and paid writers. Some of those are optional, such as webhosting and paid writers, however you definitely need a computer with an internet connection.

One may argument that he already has a computer and would already pay for internet connection however you are allocating part of your available computer lifetime and internet connection for blogging, thus you are using such resources for that purpose and incurring costs.

All that money could be used for a different opportunity, such as real estate investing, paying your debts, starting your own business or deposit into a savings account. It simply does not matter what you could do with your money. What matters is that such money could be generating profit in another opportunity and because it is allocated in blogging your blog has such opportunity cost of capital because you have given up making money elsewhere to have a blog and try to monetize it.

2. Opportunity cost of time – Behind a blog there is always a person, the blogger, that spends part of his time running the blog. Posting, designing, reading related blogs, managing ad and affiliate accounts are just some of the activities behind a monetized blog, and all those activities take considerable time if you add them up.

That person could better use his time for a different opportunity. He could be spending extra hours at work, starting his own business or managing investments elsewhere. Again, it does not matter. All those activities could be generating money from the time spent with blogging, thus that time has an opportunity cost of time.

3. Opportunity cost of space – Last, but not least is the space inside your blog. Each pixel you use for placing an ad has a cost associated with it. With that space you could be placing a different, more profitable ad or simply content for your blog which would add value to the blog itself and thus increasing the profit of your other ads. Therefore, even though it seems “free”, placing a Google Adsense ad block in your blog has an opportunity cost associated with it.


Those 3 costs should be added up to your tangible costs, such as your webhosting fees, advertising budget, etc for the total cost of your blog. Subtract that total from the income your monetize blog provides you and check how profitable it really is.

It’s important to say that those costs will not make it impossible to profit from a website, however web monetizing should be more carefully looked upon than it usually is.

Goals

This blog has a goal, a million dollars; however you may have a different goal. What is your goal, money-wise?

It is very important to know what is your goal and how long can you afford to wait before you reach it, because you need to have that in mind when deciding which investment strategy to adopt. For example: If your goal expires in 5 years, it will not be good to have a HTM (Hold Till Maturity) bond which matures in 10 years.

Another plausible reason to have a goal is to calculate, approximately, how much you need to save per month to reach it. In my post about my teenager dream I have presented some possible saving goals but it is up to you to decide how much is your savings goal, and to make sure that is a realistic one.

It is a mistake to try to save a lot of money per month, compared to the money you make, because it’s not possible to accomplish, in most cases. Banks that offer mortgages in Brazil, for example, do not allow you to agree to pay more than 25% of what you make monthly. That threshold may be slightly conservative because it depends on your spending structure, which will vary drastically if you compare the spending structure of a university student who lives with his parents with a 30-year-old person who is steadily employed, married and has kids.

If you are unsure, start with 25% of what you make and have strong discipline about it. The more you save in the beginning, the more compounded interest you will receive throughout the lifetime of your investment.