Personal Investing Advice

Checking your free credit score regularly will benefit you because your credit changes every 30 days. You are probably asking yourself what do you mean your credit changes every 30 days. Well the creditors you have obligations with re-report your credit status every 30 days usually to all 3 credit bureaus. If you had a credit card with a credit limit of $4000 and a balance of $2500 and you charged another $500 on your card your balance would change along with your credit score as well. Since creditors report any changes with your credit report every 30 days, you probably should check you credit report once every 3 months.

It would probably not hurt to pull your credit report every other month. There is a lot that can happen to your report within a 30 day period. The point I am trying to make is if you are managing your credit properly, and want to be aware of your credit score, you need to check it often. Anything can happen to your credit within a 30 day window. Let’s assume one of your creditors accidentally reports a late payment on your credit report, and you actually were not late. Because of this mistake on your creditors behalf, they just dropped your credit score 100 to 150 points. You decide to go apply for a new car, because you need one and they are advertising low interest rate loans. To your surprise because of this particular creditor’s mistake, you get denied because your credit score is too low. Believe it or not this is a very common issue out there. 1 in 4 credit reports have mistakes that cause low credit risk people to get denied. I hope I have convinced you to stay on top of your credit.

Oh, pulling your consumer credit report does not affect your credit score at all. It is considered a soft pull. With all that I just discussed, I would assume you are not independently wealthy. You probably need to save as much money (more…)

Written on 15th February 2008 (see below for further updates)

I thought I’d provide an example of a Bull Call Spread (BCS) using the Commonwealth Bank as an example. There is a lot of volatility in the market at the moment. If you have studied my course then you will know that high volatility is a great advantage for the Option Seller - a decrease in implied volatility means a decrease in the Option premium - but let’s get back to this example!

Since making a high around $62.00 in November 2007 CBA has spent the last few months falling to its current price of $47.00. Can it go lower? Is this the bottom? I have no idea! Instead of buying the stock and watching it plummet even lower let’s look at a strategy where we know EXACTLY what our MAXIMUM risk and MAXIMUM profit is - a Bull Call Spread.

When you BUY a CALL Option your view is that the underlying Stock will rise. So with CBA closing last night (14th Feb) at $47.05 you might to decide to BUY a CALL Option with a Strike price of $48.00 that expires on the 27th March 2008. The quoted price for this option is $1.69. If you bought 2 contracts it would cost you 2,000 @ $1.69 = $3,380 (plus brokerage). In 10 days time if the stock price increased by 4% to $48.93 the Option price would be somewhere around $2.15. You could then Sell the CALL Option and profit $920 or around 27%.

To reduce the cost of Buying the CALL Option you can SELL a CALL Option at a higher strike price. Building on the above example you would SELL 2 March CALL Options at a strike price of $51.00 and receive a premium of $0.71 which means you receive 2,000 @ $0.71 = $1,420. So your total cost would be the price that you paid for the contracts that you bought ($3,380) less the money that you received for the Options you sold ($1,420). Total Cost $1,960.

The advantage is that you are reducing (more…)

Did you know that you can to generate monthly income on a stock that you already own? You can, In fact it you can do it with just about any stock. It’s called selling covered calls. It is a strategy that could make you 2-3% return on your money every month. Here I will give you a step by step procedure of how to sell covered calls.

1. The first step is to find a high quality stock that you plan to hold long term. This could be as simple as buying the SPY or some other index. Just make sure it is option able. In order for you to sell a call you must own a stock. Otherwise you’ll get stuck with a naked call with could be risky.

2. Next I’ll familiarize you with call options. When someone buys a call they buy the right to buy a stock at a given price, by a given date. For instance if you bought the $65 December call you would buy the right to buy this stock at $65 by the 3rd Friday of December. This would be true even if the stock was well above $65 by December. If your right is not exercised by then your call expires worthless.

3. Once you own a stock you will want to decide what call to sell. Let’s say you own XYZ stock at $90. You will want to sell the call that is close to expiration. This means you don’t want to sell a call that is good for more than a month.

4. You will also want to sell a call far above your stocks price if you want to keep it. So say you sell the $100 call for $3. You will receive the $3 and have to sell the stock at $100, if it goes that high.

5. Let us look at all possible outcomes.

A. The stock stays were it is or moves up a little. You keep the stock and the $3 you got for the call. You can sell another call again next month.

B. The stock moves up past $100 you have to sell it at $100. You make $10 from the stock and $3 from the option, but lose stock.

C. The stock goes d (more…)

A self-managed super fund (SMSF) is one in which up to four people pool their superannuation for investment purposes. This gives them the opportunity to invest in a wider variety or resources than only one. Each person must become a trustee or directors of the fund. SMSFs are strictly regulated by the Superannuation Industry (Supervision) Act and Regulations (SIS) and the Australian Tax Office (ATO).

Some people like to have an SMSF because it gives them the flexibility to choose their own type of investment strategy, because they are in control and they have the flexibility to arrange everything to suit themselves. When properly set up, the fund can invest in a great diversity of products from property to art.

If your SMSF complies with all the rules and regulations of SIS and ATO, a concessional tax of only 15% applies. The rules? There must be no borrowing to invest, and financial assistance to members or relatives is prohibited. Any assets acquired must not belong to members or relatives. It must meet the sole purpose test and document an investment strategy. The sole purpose test is that the fund exists to provide retirement benefits to its members.

In fact, while there are benefits to owning a SMSF, there are so many rules and regulations to which you must comply that many people use a specialist SMSF administrator - that costs extra, of course.

Then there are Bond Funds and Master Funds. Bonds can be Australian or international, while Master Funds invest in other managed funds. These are discretionary, where you choose which fund managers you want, or non-discretionary, where you don’t get to choose.

Find self manag (more…)