bullworthy

If you leave your cash in the bank, this post is for you.
Ever wonder how banks make such exorbitant amounts of money? By BORROWING and LENDING with ridiculously high profit margins. When you deposit your check, you’re lending money to the bank. They are borrowing that money while paying you a set annual interest for every dollar you deposit into an account (national average: .03%). A third of a percentage is a pretty lousy rate of return when you consider two main bullet points:

• The banks take all of their deposits, including yours, which depending on the size of the bank can be billions of dollars. This creates an advantage – banks are then able to lend these funds out to consumers and businesses in the form of credit cards, auto, home, and business loans. These loans typically carry profitable rates of return from charged interest, around 6% for mortgage loans to buy a home, to as high as 21% for credit cards and consumer debt. Here is a perspective. Imagine a friend loans you $50 thousand dollars with the expectation you will at some point pay the principle back plus $15. You then loan that $50 thousand to another friend for one year, which you will then receive the principle plus $5 thousand in interest. You’ll be doing this year in and year out, all while compounding your profits. Not bad, huh?
• Inflation exists at a historical average of 3% a year. This means that the dollar you hold today will only be worth 97 cents next year. The .03% interest you earn from holding cash in a bank won’t keep up with inflation, and while your cash balance may remain the same (for example, parking $100 in your savings account for a year), your total purchasing power will decrease (that $100 a year later will only be able to buy your $97 worth of goods or services).

The point is cash is not as safe as you think it is, and in the long run, will actually be defeating.
Ever heard, ”don’t put your money into the stock market unless you can stomach losing it all”? Forget all of that, and here’s why: unless the share price of the stock you’ve bought goes to zero, you will never lose all of your money. There are exceptions, of course – Enron, WorldCom, and most recently Lehman Brothers – but these are few and very far in between. These three companies did lose nearly 100% of their value, particularly Enron and WorldCom during the technology bubble of the 2000′s (Google it). Lehman Brothers collapsed in 2008, but you probably wouldn’t have owned that stock anyway because its share price was over $500.
Here is a low-cost, low-risk alternative to savings accounts.
Where’s a safe place to put your money (protected in the same way bank deposits are) that can generate some decent returns?
Open an account with online brokerage service Optionshouse.com (member SIPC/FINRA, the equivalent of FDIC for stocks). OH has the industries lowest commission costs for buying and selling stocks online.
The following portfolio example is based upon an initial investment of $2100.
Company     Price     Quantity     Cost
APWR         $9.65     50            $482.50
FREE          $1.69     200           $338.00
COIN          $1.25     200           $250.00
ICAD          $1.75     200           $350.00
RFMD         $5.09     50             $254.50
Cash                                      $425.00

Total Equity                             $2100.00
Commission ($3.95 per trade)      $19.75
Total Investment                        $2119.75

Estimated Rate of Return (annualized)
Percent            Amount            Total Value
5%                  $105.98            $2225.73
8%                  $169.58            $2289.33
12%                $254.37            $2374.12
18%                $381.55            $2501.30
25%                $529.93            $2649.68

Keep in mind, these rates of returns assume the stock prices rise in value. This model also applies in the event that the stock prices lose value (a very real possibility, no matter who or what your investing in.) A more realistic rate of return you can expect with this portfolio in a year is between 5-10%.
In this market, it’s important to hold at least 20% of your portfolio in cash, in this case equaling $425 (in other words, don’t use all of your $2100 to buy stocks). One, you want to have cash available to minimize any potential losses, and therefore sustaining risk. Even if every company stock price went to zero, you would still have this cash (that would never happen anyway – it’s simply an accepted practice to use cash to sustain risk). Secondly, the cash you have in the brokerage account (optionshouse.com) accumulates interest, and almost always does so at better rates than whatever bank is currently using your money to get rich. And lastly, you always want cash on hand so that your prepared to take advantage of a passing opportunity (a new stock purchase or increasing your position in a stock you own).

These are mostly all small companies listed on the NASDAQ exchange. They have high growth potential and are all in a position to profit. Neither Bullworthy nor any other investment planning advice company can offer guaranteed results. We can only assure you that Bullworthy owns stock in all of these companies. Make these trades, and contact us for personalized stock management advice, commentary, and analysis pertaining to your new portfolio.