INVESTMENT AND RETIREMENT, A SINGLE OBJECTIVE- Excerpts of the book "Finance for dad"

Throughout your financial life, as you achieve your goals, your long-term objectives merge into only one: accumulate funds for your retirement. It will occur at some point during this stage.

What should your investment portfolio be like during the fourth stage?

You should be becoming an investment expert. You’ve known how to take advantage of your advisor’s knowledge not only to get help managing your portfolio, but also to improve your knowledge and complete your financial education. At the beginning of this stage, theoretically, you’ll be 20 years away from your retirement. A typical portfolio will have a high concentration in equities, looking for the highest possible yield. However, your portfolio doesn’t have to follow such performance. You should even it up according to your asset allocation.

At what age can you retire in the mandatory pension systems?

It depends on the legislations of your country and other factors. The first one is gender. There’s usually a five-year difference that favors women. Thus, for example, if a man can retire at the age of 60, a woman can do it at 55. Why is it like this if they live longer? I don’t know! It might have been a woman who wrote the first pension law and afterwards they have been so skillful that they have kept this through the years. Another factor is the system to which you are affiliated. As we explained before, some countries have more than one alternative, while in others there is only one. In the individual capitalization system, you can ask for an early pension at any age if you have enough funds to support a minimum pension. In the traditional system, it will depend both on your age and the number of accumulated weeks. In most countries they vary between 60 to 70 years and 1.000 to 1.500 weeks.

How can you improve your pension in the individual capitalization system?

Considering that you still have 10 or 20 years left to retire, you could significantly improve the amount of your pension by contributing more to it or with special contributions. However, if the laws do not allow it, then you can open a parallel volunteer pension account. You can do this in the same AFP where you are contributing the mandatory part.

How can you improve your pension in the traditional

pension systems?

In this system, the amount of your pension usually depends on two factors: the level of your monthly contributions and the time you’ve been contributing. The total of your pension is normally based, in most systems, on the average of the contribution you have made in the previous years of your retirement. So, you can increase the level of your pension if, during these years, you raise the level of contribution since this improves your average. However, you should keep in mind that there are exceptions to the rule. In some systems, pensions consist of one single payment for everyone, regardless the time and the level of your contributions. In this case, the best would be to try to contribute the required amount by law and keep the rest for your individual pension fund. It is important that you understand how your system works, before doing something. If you want to improve your pension, you must do it the right way.

Learning from experience:

A 50-year-old executive, who was affiliated to the traditional system, left his job after 25 years of hard work. He had been contributing to the social security in the highest level of the scale. Therefore, he was supposed to receive the highest pension. According to the law, he could receive his pension ten years later, at the age of 60. However, he had heard that if he accumulated more weeks, he could improve his pension. So, he continued contributing but, to save money, he did it at the lowest level of the scale. Unfortunately, he didn’t know that the calculation of the pension was based on the average of his contributions during the last ten years. As a result, when contributing at a lower scale than the scale he had been doing, he was damaging his average and therefore, his pension.

How can you improve your voluntary pension plan?

Although the logical answer is to increase your contributions; there is another important factor: you must take care of your investment/retirement fund. You have to review your portfolio periodically, and make the corresponding adjustment, when necessary. For people who have been putting off the creating of their retirement fund, now it has gotten a little bit more difficult, but not impossible. Fortunately, they are in the stage of higher income, so they can contribute more. If you still haven’t started your retirement plan, that’s because you are not convinced of your importance. Let me try to convince you. To understand this topic better, you should see yourself in the future, when your children are educated, you career has come to an end and, whether you like it or not, you’re getting older. If you have taken care of your health, you should be physically and mentally healthy; you could continue working for many more years, but...

A JOB AFTER 50?

If you opened this chapter hoping that you would find the secret on how to get a job after 50, I must apologize for giving you false hopes. The paragraphs below are addressed mainly to those who are around 50, but also to those who are still far from that age. They must be prepared for the future.

What are the odds of getting a job after 50?

If you are around 50 and unemployed, the chances of being hired are very, very low. After 55? The odds of finding a job are, virtually, nonexistent. Unless one of your children is a successful businessman and he gives you a position in his organization, there won’t be any other job opportunities. Well, you might think that you still have the chance to start your own business. I would like to make my point about this topic. If you have been an entrepreneur during your active life, or if you have had to manage the company you started and developed, I’m sure you can set up a new one. Nevertheless, if you have been an employee of a company that is already structured, no matter if you were the president, director or general manager; I can assure you that the possibilities of you being a successful businessman are very remote. Look around you; see how many people, who have retired, ex-employees that you know have been capable of setting a successful business. Not so many, right? The percentage of success is very low.

The Stage of Maximum Financial Development- Excerpts of the book "Finance for dad"

This message that I received by e-mail applies very well to both, parents who are in this stage and sons/daughters who are at the end of the second and the beginning of the third stage.

The Flight of the Hawk

Once upon the time, one king received two little hawks as a gift and he gave them to a falconry teacher to train them. After a few months, the teacher told the king that one of the hawks was perfect, but that he didn’t know what was happening to the other one: it didn’t move from the branch he was placed on the day he brought it. The king called folk healers and witch doctors to check the hawk, but nobody could make the bird fly. So, then he assigned such mission to the members of the court, but nothing happened. The following day, the monarch saw through the window that the bird remained still immobile. He decided then to communicate this issue to the people of the town and he offered a reward to those who could make the bird fly. The morning after, he saw the hawk flying agilely through the gardens. The king said to his court: “Bring me the author of such miracle!” His court quickly brought in a farmer. The king asked him: “Did you make the hawk fly?” “How did you do it?” “Are you a magician?” Intimidated, the farmer replied: “it was easy, your majesty. I just cut the branch and the hawk flew. He realized it had wings and… it flew away”.

What basic financial planning is required during the fourth stage?

The fourth stage, between the 46 and 55 years of age, is the one of maximum financial development, in which you will arrive at the pinnacle of your career and will begin to see the fruits of the cultural legacy that has been sown in your children. You should have a good position in your company or a successful business. Your children are going through the transition from the first to the second stage and they are supported by the values and traditions you’ve taught them. Upon completion of their academic preparation they will be ready to fend for themselves, you can consider that you’ve done your job; now let them fly away. During this period, your income should continue growing at a slower pace than the previous one, but in a steady way until reaching the peak. Then, towards the mid or the end of the period, it will start going down. Your expenses will follow a similar performance: high at the beginning, since you will have to face the time when your children have higher monetary demands, but later it will start to decrease as they finish their academic preparation and start generating their own revenue. You will have to manage your finances very efficiently so that you can maintain a perfect balance between your income, expenses and surplus reserve for saving and investing.

What are the essential assets during the fourth stage?

46 years old. You should have, at least, five essential assets: education, connections, creditworthiness, vehicle and, of course, your home; a home that you and your partner bought with such joy, the foundation of your quality of life, and the support of your happiness. Your improvement program continues, especially in relation to the financial and investing area. You have attended a couple of seminars about this topic and you now are prepared to negotiate with sales agents of insurance policies and investment companies that have begun to contact you in the later years. Your creditworthiness must be impeccable. Your bank has even offered you a platinum credit card. You don’t need it, but you accept it to enter the VIP lounges at airports. It is nice to know that your bank has you in such high esteem! Your friends/connections remain firm. They are probably venture partners, both commercially as well as socially. You have different means of transportation. Obviously, you and your partner will have appropriate vehicles to your selfprivileged status. In your case, it is no longer a cheap car you bought with a loan, now you have a powerful sports car. You don’t need it, but you feel good with it. You were able to buy without making sacrifices in your budget and you are thoroughly enjoying it. That is good! With regard to your children, they have been getting the cars that you and your partner have replaced. Don’t forget to tell them that this car is a loan.

-What’s next?

Buy a bigger home. The family has certainly grown and you need more space. But you already know how to cope with the bank and other details. Make use of the calculator to assess your new acquisition. You already have the necessary essential assets; now you can think about some luxuries. Those that are not necessary, but help you to have a more pleasant life: a boat, photography equipment, canvas and brushes and any other assets that could be part of your recreation. If you can do this without sacrificing any other areas of your plan, then go ahead. Do it. Enjoy yourself!

What insurance plan do you require during the fourth stage?

There won’t be many changes during this stage in the area of insurances. Your children are growing up, but they are still dependent. You should still be protected by policies for all common contingencies. Your main task in this part is to keep your policies valid.

STRATEGIES TO AVOID OR REDUCE INCOME TAX- Excerpts of the book "Finance for dad"

Since this is the stage of maximum development and the one with higher income, you also will have to accept that it is also the one with higher taxes. Collecting entities will be very aware of your financial progress. You will have to make use of all the strategies you know in order to minimize taxes.

Is it legal to apply strategies to avoid or reduce the amount of income tax?

It is perfectly legal. However, at this point, it is important to establish the difference between the avoidance of paying taxes and evading taxes. The first one is a legal procedure, whereas the second one isn’t. In the first case, you act before tax is charged, but in the second case, the potential offender of the law tries to find tricks to avoid paying taxes which he has already incurred. The strategy to avoid or reduce taxes consists of foreseeing and preventing them before they are generated and trying to find ways to avoid them or reduce them as legally possible. Let’s illustrate this strategy through an example: Suppose that you need $50,000 to invest in a business. You have a beach home to enjoy during your vacation. This is valued at $100,000, but its real market value is $250,000. You have thought of selling it to get the money, but you know that if you do, you will have to pay property valuation taxes. You accountant lets you know that there is going to be a tax reform and taxes on property’s return can be reduced significantly for next year. Then, you decide to put the sale off until next year and use it as a loan guarantee to invest in a business. With this strategy, you’ll be saving an important amount in taxes when selling your property in the future.

Which strategies could be used to avoid or reduce the amount of income tax?

The following are general strategies that may or may not be applicable to your case, depending to the current tax law of your country of residence. When dealing with taxes you should consult with your accountant before taking any decision.

A. Reducing the amount of taxes on your income

When reducing the taxable part of your income, you will be paying fewer taxes and, therefore, taking more money home. Here, you will find some ideas on how to do it:

Salary in kind. If you generate a high income, you can reduce taxes with the help of your employer. Ask him to pay your salary as traveling expenses or with tax-exempt benefits such as: insurances, retirement plan contribution, educational assistance, etc. By doing this, the taxable part of your income will be considerably reduced.

Gift or transfer of income-generating properties. If part of your income is made up of properties that generate income and you are in the highest level tax bracket, you could move down a few levels by transferring those assets, with their income, to your children or family members that are in lower levels. Therefore, you could reduce the total rate of taxes and at the same time, you could take advantage of deductions.

Investing in interests-exempt instruments. If you receive income from financial investments, there are investment instruments in many countries whose returns are tax free. For example, municipal bonds are exempt in the United States. In other countries, interests on governmental bonds, savings accounts or some dividends could be exempt. However, you should keep in mind that, in general, these investments pay lower interests than similar instruments with taxable returns. You should make your own calculations before investing and determine if, in your case, what you are avoiding paying in taxes compensates the lower yield of a non-exempt investment. This kind of investment is more applicable for people who are in the highest tax brackets.

B. Deferring some taxable income

In this case, it’s about reducing the amount of taxes that, sooner or later, you will have to pay, but on which you have control over. For example, if you realize that this year your income will place you in a higher level in the tax scale, but you estimate that next year or in the upcoming ones the level of your income will be lower and, therefore, you’ll be in a lower tax level, you might want to defer some taxable income. Let’s see some ideas:

Deferring income for special bonus or any other concept. If your employer will give you a bonus in December, you could ask him to give it to you in January next year. If you receive money from a rented property, you could ask the tenant to postpone the December payment until next January. If you perform a service in December, you could get the money in January.

Deferring profit taken. Your investment in stocks has risen substantially and you believe it’s time to take profits. If your total income level is very high and you think that next year’s might be lower, you could postpone the profit-taken until next year when your total income could be minor and you can be in a lower level of the tax table. Long-term postponement (retirement plan). Some legislations authorize residents to invest –tax free- an amount of their income. While the money remains invested, the yield will grow tax free until the person reaches a certain age. IRA (Individual Retirement Account) is a typical example in the US. When the accumulated capital is required, usually many years later, the total income is generally lower which places the person in a much lower tax level.

C. Anticipating deductible expenses

Medical and dental expenses. For example, if you have a scheduled surgery or a consultation with a dentist for January next year, you could move it so that it can be done the current year and be deducted from your taxes.

Charitable contributions. If you usually include within your budget any charitable contributions, you could make it December the one that you have planned for next year. As you may have noticed, the proper tax planning will let you manage your payment in a way that it is more favorable to you. There might be other specific strategies in each country, which I’m sure are well-known by your accountant. The strategies that we mentioned before are ideas of a

general nature and shouldn’t be followed to the tee but as suggestions. If you want to make use of any of these strategies, we advise you to check first the taxes legislation of your own country to be sure that they are applicable

Estate and Taxes during the Third Stage- Excerpts of the book "Finance for dad"

We are all going there! We know that but we would rather think of it as something distant. We experience the pain of seeing our relatives, friends, neighbors, colleagues and even acquaintances who are our children’s age, pass away, and even so, our subconscious holds onto the idea that our turn is far from coming. It is just a topic we don’t want to deal with, but we have to. Let’s try to focus on the benefits that this represents for our loved ones that survive, rather than from a depressing point of view: our end.

What is the objective of estate planning?

It has to do with time and situations related to the end of our life. The purpose of this is to give us some peace of mind and let our spirit rest as we go to the final resting place and maximize the legacy for our family in terms of personal, emotional and financial aspects. Estate planning mainly covers two areas: personal and financial aspects. In the personal part, it includes topics such as child care, especially for those who are still dependent, as well as your wishes for what should be done with the administration of your assets and decisions in case of severe disease, senility and mental disability. From the financial perspective, there is the planning of the distribution and administration of the inheritance after we leave. It is important not to confuse estate planning with making a will. The will is part of the estate planning.

PURPOSES OF ESTATE PLANNING

We will mention the most important goals:

Planning childcare in case that both parents die simultaneously. This is when we use the denomination of guardian (godfather in some countries). This is their real role. If you made the right decision when choosing your children’s guardian or godparent, it is time that you remind him of his responsibility. If you only choose a decorative guardian, it is time that you find a real one for your children: a guardian whom you can trust to take good care of your children.

Avoid giving your family the responsibility of making tough decisions in case of mental disability. In the case that you become unable to make decisions, you might not want your family to pay for a long and incurable disease or expensive surgery with limited possibilities of recovering. It will be difficult for your partner or children to take a pragmatic decision. Your thoughts expressed in the estate plan will be of great support for them. You could also leave this decision in someone else’s hands like a doctor friend, maybe someone who knows both your health situation and your financial situation.

Distribute inheritance in a fair and convenient way. By giving precise instructions on how to distribute your assets after your death you will protect your beloved ones and prevent any conflicts among them. Your instructions will prevent any potential conflicts. If any of them are not satisfied with the result, it will be your fault and not the other heir’s fault. Anyway, if you decide to leave more for someone and less for others, I’m sure there will be an explanation for this. It’d be ideal to let them know while you’re alive and preparing your testament. If you do this, there won’t be any hard feelings among your beloved ones. According to your estate plan, you have the option to leave a will. In case you don’t, the distribution of your assets will be done according to the Estate law of your country. Most legislation will give priority to your spouse or partner that lives under the same roof and then your children. In the absence of both of them, the distribution will be based on the degree of consanguinity of your heirs.

Planning your assets administration in case that your heirs aren’t willing or aren’t capable of managing it. It happens sometimes that a widow or the children get a considerable inheritance, enough to maintain the quality of life that they have been accustomed to, but they don’t know how to manage it and soon, they will realize that their money is gone. To prevent this situation, you must prepare your potential heirs on how to manage the family’s financial issues and, when needed, to choose a reliable tutor to manage the financial affairs of the family or at least to provide some support. In the case that you don’t have a person you can trust, there’s another alternative, which is placing your money in a trust in a bank or other financial entity. The only disadvantage is that, in general, costs are very high. Another option is having your investment advisor as support, which won’t cost you that much.

Avoiding or reducing estate-related taxes. Last but not least. It is actually the opposite; it is important that you know about estate-related taxes law in your country and the place where your assets are and also, you should foresee the effect that they will have on your estate planning. After this, you should launch the necessary alternatives to avoid or reduce taxes. In certain countries, estate-related taxes tend to be very high. They could even take a considerable part of your inheritance if this is avoided by evading taxes. This method is becoming less and less popular (remember it’s illegal!). New advances in computing have let governments and tax institutions be more efficient in collecting taxes. 

Why should you plan your estate during the third stage?

During the family formation stage you will have to play the roles of son/daughter as well as of dad/mom. Your parents will be going from pre-retirement to retirement, and your children should be going through their first stage. You will probably have to take care of both, your own planning and your parent’s. It is possible that they have never heard of the importance of preparing an estate plan. You will have to find the way to talk about it with them. Later, we will give you some suggestions. In regard to your young children, have you thought of who’s going to take care of them in case that you and your partner pass away or you become disabled due to an accident or any other circumstances? It is not usual, but it does occur. Probably you have certain preferences for some close relatives because you know you can trust them, both in their managing skills to look after your assets and their ability to raise your children. It is better if you and your partner make this decision. Talk to the person you have chosen so that he/she gets prepared. The guardian or tutor is plan B. They should act as an additional support or substitute in case that the family member needs him/her.

When should you prepare your testament?

An estate plan itself is nothing more than a private document with no legal power. So, in order to give some real value to your decisions, you should write a will. It is good if you also attach an instruction letter with it.  When to do it? This is a personal decision that will depend on your situation. If you ask any experts, the answer will be as ambiguous as: “as soon as possible”. It is better to change it for “the sooner, the better”, meaning that you should do it as soon as you have some property and/or dependents to care for.

Is it prudent to suggest to your parents to write a testament?

It is not only advisable, but recommended. If your parents still haven’t written it, maybe it’s because they don’t know the possible consequences of not writing it. It is important but it is hard to face the topic. It requires a delicate touch. It probably requires a specific strategy like giving them a copy of this book, or talking to your lawyer, accountant or a friend so that they can give them some suggestions. Another strategy can be for you to look for advice from your parents as you prepare your own estate planning. This will make them think about their own plan.

THE RENOVATION STAGE- Excerpts of the book "Finance for dad"

What basic financial planning is required during the pre-retirement stage?

Time flies! You’re now moving toward that stage that is desired by some and dreaded by others: retirement. You’re making plans to stop working. You think about your current situation and the stage that you are about to experience. If you have set up a company, it is likely that your children work in it. You’ll be feeling pressure when they try to change what you have created. If you are an employee, you’ll be dealing with new generations that are more prepared, updated and energetic than you. It is also time to retire. You think and you calculate, you calculate and you think, over and over. You like your job and you don’t want to retire, but you know you have to, whether it is because of the legislations or because you can’t stand the pressure and you have to leave. For some self-privileged people, this situation will be easier than for others. Some of them could keep a steady level of income from work until retirement. Therefore, when it starts to decrease, they will be able to survive comfortably with the income they receive from the pension fund they have. Others, particularly the ones that have stopped receiving salary from the beginning of the stage, will have to struggle a little bit more. They could see their income going down before they start receiving their pension funds. In this case, they will have to make an additional effort to remain within the group of self privileged people.

CONTINGENCY PLAN

If you are part of the self-privileged people that lose their jobs during this stage and, as a consequence, experience an interruption of their income from work, it is important that you establish a contingency plan that should have, at least, the following provisions:

Adjust your financial plan to your current situation.

Check your financial statements, analyze thoroughly your income/expense chart and adjust your expense budget to your new situation. For a moment, the income/expense balance has gone toward one side. It is important to even it out by working with the part you have more control of: your expenses.

Recognize your current situation. Don’t think of yourself as another unemployed person. You should know that you are no longer an eligible candidate for a job; if you do get one, your services will be valued at a much lower rate than you were used to.

Don’t be left out of circulation. Don’t try to take advantage of the situation to take a long holiday, thinking that with your abilities, connections and experience you’ll be able to get a job or start a business “whenever you want”. Each day that passes by will make it harder for you to go back to the working world.

Keep your emotional stability intact. It’s not about you being worthless, disabled or unpleasant. It´s not like that. Look around you; it is a normal fact. Companies want to hire new people at lower costs.

Renew your knowledge. While you were focused on your job, the world continued moving forward. It is possible that you were left behind and you require upskilling in your field and direct your activities toward new interests. In one word: renew yourself.

At the end, you’ll be able to go through this situation and remain within the group of self-privileged people. This experience will be very useful for you so that you can treasure the quality of life you have enjoyed.

DOWNSHIFTING

You are very close to completing your retirement fund. You are thinking about your future. You probably won't want to stop working, but simply slow down. It is something like the concept of “Downshifting” (very popular in the mid- 90s, which consists of reducing working hours and dedicating more time to leisure activities). If everything adds up, making a decision will be much easier. There won’t be any money problems and that is fortunate. Neither old age nor poverty is a good companion; even less if they come together. In the middle of this stage, it is necessary to start getting ready for transition. Once you finish your responsibility related to children, you start living a new life with new goals, new values and a different way of seeing things. You need to refresh yourself; you need to stop and to fill your lungs with air, to start your life with a newfound enthusiasm and energy. It is important to get ready to take on more challenges and enjoy them!

SELF-ASSEMBLED INDIVIDUAL RETIREMENT PLAN- Excerpts of the book "Finance for dad"

How can you assemble your own individual pension plan?

In that part, you will find all the necessary information to create your own investment portfolio. A pension plan, as we mentioned, is nothing else but a long-term investment. Therefore, do the exercise to develop your own financial assets allocation and create the most convenient portfolio. The portion of long-term investment will be your pension plan.

What is more suitable when establishing an individual pension plan: creating it personally or getting a structured plan?

Both alternatives have advantages and disadvantages. Before making a decision, it is important to go through them. There are different commitments; in the first case, you are free to contribute and withdraw your money whenever you want to. In the second case, you are committed to contributing a fixed amount during a specific number of years and you can’t have this money back until the due date has been met. In general terms, we can say that the first system is good for a highly disciplined person from a financial point of view, and the second one, for those who are not so much. Obviously, the second alternative is more expensive than the first one, but if you think that you don’t have control and discipline to manage your own portfolio, it is better if you buy a structured plan; otherwise when retiring, you will see yourself without enough resources to survive, which is not a good prospect.

Can you have a pension plan abroad?

From the standpoint of the recipient countries, there is no problem. You can invest anywhere in the world. It is even possible to invest in real estate in the moon. Limits can be found in your own country. So, the first thing you should do is to investigate your local legislation in relation to the exchanging currency regulations. Once you have determined that there are no local constraints to invest abroad, the next step, as usual, is to get information about the subject. The Internet is a great tool. You can find a lot of information on the possibilities of individual investments. When you feel prepared, we suggest that you find out local brokers that could be representatives or have their own connections with foreign investments. At this point you’ll be ready to discuss with their representatives.

Is it prudent to get a pension plan abroad?

It depends on many factors: your situation, economic expectations in your country, economic expectations in the country you want to invest in, the company through which you want to invest, taxes, financial instruments, etc. There isn’t a general answer for this question. It is better to talk with an investment advisor.

How much do you need to save each year to retire at the age of 65 with $1,000,000 if you start contributing during the third stage?

If you didn’t start your retirement plan during the previous stage, try to do it as soon as possible during this period. Don’t put it off any longer, stop thinking about it. The required amount will be higher as time goes by. There will be a point in which it will be practically impossible to achieve your objective. In the chart below, you will see the required annual savings, according to the year you start contributing to your plan. For the purpose of this exercise, let’s imagine that you keep your objective: retiring at the age of 65 with a capital of $1,000,000. Let’s also say that the average yield that your contributions will get is 10% annually throughout the period.

As you can see in the previous chart, starting a retirement fund plan gets harder and harder as time goes by. So, if you start at the age of 31, your annual contribution will be $3,703 a year, but if you put it off until the age of 45, it will be $15,872.

Investing in common stock- Excerpts of the book "Finance for dad"

What is a common stock?

It is defined as a security that represents ownership in a corporation. When investing in stocks of a corporation, you become a co-owner. Through the stock market, you can become a co-owner of Apple, IBM, GM, DuPont, Microsoft or any other iconic company. Owning stock in a corporation gives you the right to attend meetings and vote for decisions to be taken. It also gives you the right to choose and to be chosen to be part of the administration. However, since these corporations release a high number of shares, you need a substantial investment to be part of the decision-making process. Stocks do not have a specific expiration date, they are everlasting. You can keep them for as long as you wish.

What are the risks of investing in stocks?

There are many risks. In the first place, the commercial one; meaning that you can lose all your money. When you buy stocks, you accept that risk. If the company fails, goes bankrupt, the owners (those who have shares of the company) are paid out last after creditors are paid. Bondholders are paid ahead of the stockholders when it comes to getting investment funds back from a failed company. The second aspect you should keep in mind is prices fluctuation. Sometimes stock prices (even the best companies) can drop dramatically and it may take a long time to recover. Investors must be prepared for market fluctuations. But the most… most important risk, also related to market fluctuation, is inexperience. If you buy stock without having enough knowledge of this area or previous psychological preparation, you can lose money because you won’t be able to handle the pressure of seeing stock prices drop temporally. If you don’t know what’s going on, you will feel scared and you will sell at the worst time. The chances are that in a few weeks or months you will see that those prices got back on track, but you will have already sold them.

How can you make money by investing in stocks?

As you invest in stock, it is possible to make money in two ways: through dividends that corporations release periodically among its shareholders and through price appreciation, that is, capital gain. Both kinds of earnings are variable. Shareholders are not guaranteed that they will receive return on their investment from the executive board of the company. Although most companies offer the possibility to get benefits both from dividends and capital gains, it is possible that some companies don’t. So, it is important, when investing, to know what kind of company you are getting involved with. If it is a new company, the board of directors probably will use all the profit to leverage growing projects. Therefore, shareholders will not see dividends for a long time. On the other hand, mature companies use part of their profits to continue growing and they share the rest with their shareholders. Capital gains are produced as a result of the fluctuation of prices on the stock in the market. It is the difference between a higher selling price and a lower purchase price.

HAPPY FATHER'S DAY to all financial dads!

Those who daily care about the welfare of his family; honest parents who give all to see their loved ones happy. Parents always deliver all of them to provide the best for their children, a father sacrifice himself daily for the daily bread, and who else can do that if they are not parents?

The Father is the head of the household, so we have been taught, he is the man of the house, so you should respect and admiration. At home, the father and mother are those who run it, and the children are under his orders, so that everything goes well, for a home should always have discipline, if not all would do whatever they wanted, and that home would go foundered.

Thus, Dad is the greatest thing we have, the children must follow the example of the worker and homey Father who loves his wife and children, giving them food and education, in addition to the dress, and It covers medicines when they are sick. Our parents love us and give us all their love, like our mother, because they seek to give the best education

That is why today we invite you to raise awareness and to reflect on how you take your life and your personal finances, remember that a father is the only one who can give your life for your children!

What property insurance should be acquired during the second stage of life?

At the end of this stage your only insurable asset is probably your vehicle. Almost certainly your car is insured by the company that the loaning bank made you hire. If you bought it in cash, you would not have been forced to get your car insured, but maybe you were conscientious enough to do it. If your car has other insurable assets, don’t think twice about getting them insured - you will sleep better at night if you do!

What coverage is provided for vehicle insurance?

The personal insurance of the driver is usually divided into five parts:

Civil liability. This is the most important since it covers accidents in which you or third parties are injured. In many countries it is mandatory to get a policy with at least the minimum coverage. To be safe, it is better to have relatively high levels of coverage. You need to keep in mind that potential losses are considerable. This kind of insurance covers legal consultancy, but only in the case of civil litigation.

Medical/personal injury protection. It covers health expenses that could result from an accident in which the driver and/or passengers had suffered injuries that require health assistance.

Death or physical disability. Most policies usually include this type of coverage.

Damages caused by drivers with no insurance. This clause covers physical injuries to you as a driver and/or to your passengers as a result of an accident with a non-insured driver or with a driver with insufficient insurance.

 

Fully comprehensive insurance. It covers damages to your car in case of animal damage, theft, fire, vandalism, etc.

Other optional coverage. This includes tow service, which could be quite practical and does not raise the price of the annual premium; possibly the rental of another car while

yours is getting fixed.

How to save while getting vehicle insurance?

Here you will find some practical recommendations:

Do not claim small damages. Each claim goes on your record and increases your premium in the years that follow.

Increase the deductible. As we said before, it is not recommended to claim small damages.

Eliminate health coverage. If you already have good health insurance, this coverage is not necessary.

Safety mechanisms. Install an alarm system, circuit breaker, satellite tracking, etc. Be sure to highlight these features to your insurance company when you are signing your policy.

Apart from this, it is recommended to buy a vehicle that is not too attractive to thieves. Insurance companies take this into account when calculating the premiums.

THE ORIGIN OF FINANCIAL PARADIGMS- Excerpts of the book "Finance for dad"

What is a paradigm?

The word “paradigm” has several meanings. In this book we will use the most popular one in relation to human behavior. In this sense, paradigms are our beliefs, our truths, or the things that we have always accepted as certain, and on which we base our actions.

What can be done in the financial aspect during the first stage of life?

A lot! It is obvious that the child who grows up with the adequate financial paradigms will have a greater chance of becoming a self-privileged person. Of course, parents have to seed those paradigms in the minds of their children. The first aspect that they should consider is early financial independence. The self-privileged person should grow with that objective in mind. In order to emphasize how important it is to be self-responsible as early as possible, I will address him/her directly. This message goes to the potential self-privileged person who is still in the first stage, from the womb of the mother to the youth. He/she will receive the message through his/her parents. Therefore, I talk to you, my young friend. Your parents will be the ones to read this for you, they will absorb the recommendations offered in this text and they will put them into practice for your benefit. They will be responsible for starting you on the path of your financial education and instill the culture and paradigms that will have a remarkable influence on how you act throughout your life. You need the adequate paradigms to lead you in the correct direction from the beginning. Probably due to the wisdom of your unconscious mind, you have already noticed the importance of the majority of the topics that we are going to discuss; and how meaningful they are for you.

What basic financial planning is required during the first stage?

You are not expected that you set your financial objectives in this stage; these should be established by your parents until you grow up and take control of your own life. This is a stage of dependence, during which your participation in the economic matters of the family is limited to the area of the unconscious expenses. You know what you want, and you want it now! It doesn´t matter if your parents have the resources or not to give this to you. Some parents probably do not know that, regardless of their resources, they should teach you the virtue of the future reward. Others know, but in order to avoid a tantrum, they choose not to teach you

that lesson. Daniel Goleman, in his book “Emotional Intelligence”, shows us a very interesting experiment carried out by the psychologist Walter Michel in a kindergarten at Stanford University. A person tells a boy he will give him one marshmallow immediately or two if the boy can wait for that person to finish the task he is doing. Let us see the original story:

The marshmallow test:

“Imagine you are four years old and someone proposed this to you: if you are able to wait until that person finishes the task he is doing, you will get two marshmallows. If you can’t wait, you will only receive one, but you can get it right away. Undoubtedly, this test challenges the soul of any 4-year old creature. It is like a little universal and eternal battle between impulse and restriction, the inner me and the ego, desire and self-control, incentive and delay. The child’s option represents a revealing test; it can show a quick interpretation of his personality and the path that he/she might walk on along his life.”

“This test continued along the children’s life until they finished high school… the emotional and social differences between children who took the chocolate and the ones that delayed their awards are remarkable. Those children who resisted temptation at four came to be more competent and sociable as teenagers; they were personally effective, confident and more capable of dealing with any frustration… they accepted challenges and they preferred to face them instead of giving up… they were confident and trustworthy; they took initiatives and got involved in projects. And, after one decade, they were still capable of delaying rewards so that they could achieve their objectives.”

“Being able to put off your impulses is the foundation of a series of efforts, from being on a diet up to getting a Health degree.” You must convey to your parents how important it is that they teach and help you practice the virtue of delayed gratification. Patience and persistence will be very useful in life. Knowing to seed, cultivate and take care of the fruit and only consume it when it is mature is an invaluable lesson that will help you towards success. Ask them, moreover, that from an early age, they teach you the value of money and the basic concepts of its administration. As you grow up and become more conscious, you must understand a basic principle of economy with which we all have to live:

“We have limited resources to satisfy unlimited needs.”

Your parents will try to prepare you for the future by offering you the opportunity of getting some additional abilities to your standard education: language courses, piano, ballet, gymnastics, tennis, soccer, baseball, etc.; disciplines that can eventually help you in specific situations. However, they usually forget an important area that you will have to face throughout your life: money management. Whether you are going to like finance or not, you will have to handle it! Insist to your parents that, as soon as they think it is possible, they get you involved in the financial matters of your family. When they tell you that “money does not grow on trees”, ask them to explain the meaning of the phrase; request that they do not give you your monthly allowance without teaching you simultaneously how to administer it. Do not let them, or anyone else, tell you the story that poverty is good and that rich people do not go to heaven. As you may have realized, there is a lot to learn and assimilate regarding Personal Financial Planning during this period. Do not forget, it is an important stage. The concepts acquired at home, school and everywhere around you, are going to be crucial in your financial life. They are the paradigms that you will base your future on in order to succeed. At the end of this stage, at the age of 18, you should have finished your high school and you will be starting a professional life, whether it is by getting an Associate's degree or Bachelor's degree, or learning an occupation