Managing Your Starting Capital

I would like to share with you here my comments about cash management.

At the end of the day, the most important factor no matter what, where or why you invest is  “Money Management” The lack of money management is the cause of a lot of people losing more than they bargained for, and many people never give this as much thought as they should.

I will never invest more than the amount I am prepared to loose, not matter how good or bad the risk to reward ratios are. What follows is the basis to the process I go through to determine my investing exposure.  The devil is in the detail so you have to be able to work backwards.

I ask myself, what do my monthly / yearly expenses amount to.  This is everything rent, car, food, insurances, holidays etc.  I would make this a generous, but realistic figure.

Knowing my cost of living I would put this to one side and call it my security pot knowing if everything goes tits up and I have no income then I know full well I can survive for “x” amount of time on “x” of dollars that would give me chance to get back on my feet.  This is my “sleep at night” factor knowing my financial position is protected should a disaster happen to my portfolio.

Within my expenses I would also be considering insurances and protections etc.  For example, trauma insurance, income protection, and maybe some life insurance.  Medical insurance is always good and usually pretty cheap when you put it into perspective.  If I had an injury I know full well I could be relaxing in my private room with all the mod cons and still be able to trade the markets.  I am sure wireless connectivity and large LCD are pretty standard these days … I digress.

The amount in my ‘security pot’ I would put somewhere safe.  Unfortunately there’s not many places with decent interest these days.  It could be there are some overseas banks that can provide good and tax free interest, something I might look at in the future.  I have never used fixed term deposits, they generally only payout the interest at maturity hence the interest isn’t compounded, so a bit of waste of time if you ask me, especially when the rates are as low as they are. Plus, your cash is 100% tied up.

With what’s left I would be looking at investing a % of it depending on what I would be comfortable with.  Depending on the type of investments or trading accounts being used then additional funds may need to be available for things such as margin calls or roll outs. It’s always good to know your capital is never 100% exposed.

Hope this may give some food for thought.

Do You Have To Pay Annual Credit Card Fees?

Not if you can negotiate!

This originally happened to me by accident when I found I had been charged an annual account fee of $80.  I did question this because a) it seemed a little high, and b) it had been charged in advance of when it was actually due.

All I said was that I would be looking to move my account else where because of the high fees and without hardly say anything they just credited the fee back with no questions asked.  Guess what, I have done this 3 times in a row.  Just before the charge is due, ring up and ask what the charges are going to be and mention you are looking at an alternative bank.  There’s a good chance they will waiver the fee to keep your custom.  A friend of mine who used to work in a bank call centre says they do this all the time.

With this particular bank I don’t have a normal transaction account, just my credit card so I can claim my frequent flyer points. The last time it wasn’t going to work as the customer service representative wasn’t so easy to convince.  The ball was back in my court so I asked “if I was to keep my custom with you and open a normal transaction account would you consider waiving the credit card fee”. After a few err’s they said yes as long as I would deposit $300 into that account, and the new account was set-up over the phone.  Again, my friend said this quite normal for what goes off in a call centre. I left it there a week then shifted it out. I suppose i ought to close it now in readiness for the next negotiation.

Not a big hassle really when you think can save you $80 or so each time. There’s a good few feeds there.

Mark

Is PayPal Giving You A Raw Deal When Accepting Their Exchange Rates? Change It Yourself!

When withdrawing money from your PayPal account there is obviously no charges when withdrawing into the currency your account is in.  However as we know when transferring out to a foreign currency then you stand to pay the exchange rate that PayPal set.  Which to me seem on the high side.

How much would you save if you could set the exchange rate for your transfer at the rate YOU are happy with and before any money is moved.  How do I do this? I hear you ask!

Imagine if you had your own currency exchange account (like I have – and its very easy to set up) Then all you do is construct your deal. Eg (To transfer $AUD1,000 to $USD, lock in the rate and state the beneficiary details.  Your account manager will give you the details of the bank to deposit your $AUD1000 into which will be in the same currency as your PayPal account (hence no exchange made).  Once the $AUD1,000 has been deposited the exchange will be made automatically as per your agreed rate and the monies deposited into your nominated beneficiary. Cool ey!

Another good feature with this is, if you are in no hurry to make a transaction then you can set a limit order which essentially means after you construct your deal, the the exchange rate isn’t locked in until it reaches a specific level as per your order.  Alternatively if you think the market is going to go down but you don’t want to withdraw the money for a week or two then you can lock in a rate straight away and complete the deal as and when you need to.  (Subject to the arrangement with the account manager).

To see how your own currency transfer account would work see the page ‘changing currency’, or alternatively you can go straight to the homepage of the company I use for more details.  The company is called Currenncy Online.  I am an affiliate of this company, but hey… if they provide a good service and can save you lots of cash then it’s worth sharing.

Get this wrong and you’re up sh*t creek without a paddle

Money management is the key for any investor to achieve favourable results. Unfortunately money management is often overlooked and is where most people fail because they didn’t have a plan to follow. These are the “show me the money” groups of people. The term “don’t put all your eggs in the one basket” has only a minor part to play. How many baskets do you need, how many eggs do you have, and where are you to lay them etc.

Each individual has their own systems. The Money Pie structure is one method I have adopted. I certainly invite anyone to add comment, and share your experiences.

The Money Pie

The money pie concept was put together by the honourable Bill Stacy (Top bloke, the founder of OneDayWealth) and I use this structure for selling Credit Put Spreads and also Directional Trading in order to visualise my current risk profile. I was introduced to this system when I was a member of Planet Wealth. Check them out they are very successful at what they do.

It’s not important to understand how to sell credit spreads on the options market, but I am just using this as an example of how I use it. All one needs to know is that each trade requires one section of the pie. Have a look under the options tab for selling credit spreads.
Now the pie is better illustrated in a drawing, but as i am not a graphic designer, and this is a poor image this will have to do until I can come up with something better – but you get the idea.

The Principle is pretty straight forward and you are probably already ahead of me. One thing about trading, or investing in general is that it is always important to realise that what ever one’s risks are then one must be happy to lose it.

This principle of the money pie played dividends to me a couple years ago when it prevented me from trading just as the markets started to go bearish. I was a casualty of trading the wrong strategies at the wrong time, hence compromising my risk profile and needing to re-assess my situation. So I did manage to keep the shirt on my back.

I digress, back to the pie; Essentially, the idea is to take your capital and put 50% somewhere out of the way. This would be used to get one out of the proverbial if needs be. To some folk, this risk profile may seem aggressive, but it worked well for me trading the options. I do however use a more conservative approach when trading FX which is designed to double the capital risk within three trades. But that will have to be another article.

So with a 100k, one would put $50k under the mattress for safe keeping and split the rest into trading sections. In the case of the image above that would be 5x sections of $10k.

In my opinion it would be far too aggressive to be placing trades
and having all sections of the pie exposed at any one time. Certain strategies may require further injection of capital to minimise losses. In the case of spreads this would otherwise be referred to as ‘rolling-out’ or ‘rolling out and down’. If this happens then another slice is required

Obviously, the more sections of pie the better and the more trades one
can afford to have active at the same time means the more diversified
the portfolio would be.

By visually been able to see how many trades one has active in relation to the overall trading plan, to me just keeps my psychology in perspective. So I would have this drawn out on a white board along with my trading plan.

Due to increased security laws, not all banks allow you to set up a new beneficiary on line without first having to go through a long winded process of making an application, and then waiting a few days for a for password key to be received via the post in order to activate the new beneficiary.

The Bank of Ireland uses this process.  I was needing to transfer EUR’s to New Zealand (In Euros) because I can make the actual exchange into NZ using my own rates.  So I went through the process above with the beneficiary being a bank in NZ, this beneficiary application was accepted.  When it came to carrying out the transaction, the Bank Of Ireland wouldn’t allow it because New Zealand wasn’t on their list of countries in which the home currency could be sent. (Most countries are,  Seemed strange that Australia was but New Zealand wasn’t…anyway…)

This was annoying especially having waited 4 days or so to set up the beneficiary, and there was no ‘obvious’ information that suggested they could or couldn’t.

So the basis of this post is:

1. Bank Of Ireland doesn’t allow overseas transactions to New Zealand
2. Make sure the bank can actually send your cash to the country you want to.
3. Allow say 5days for some banks to authorise beneficiaries (Dont get caught out by long weekends and bank holidays)