Equity Finance » Stock Market

Saving Money in 2009

admin — Fri, 27 Nov 2009 11:37:10 +0000

With the Federal Reserve lowering interest rates at the end of 2008, 2009 will be a tough year on people looking to save money. When the Federal Reserve Bank lowers interest rates, it is great for people looking to borrow money. However, these lower rates also translate into lower interest rates for savings account, checking accounts and certificates of deposits.

These lower interest rates are going to make it very difficult for people looking to earn the most interest on their savings. Recently, online banks with high yield savings accounts like ING Direct and Emigrant Direct Bank have already lowered their interest rates. Banks and credit unions around the country have been lower their savings account rates as they can borrow money from the Federal Reserve or other banks for lower interest than they had to pay earlier in 2008.

Lower interest rates are not limited to savings accounts. We are seeing banks lowering their CD rates too.

These lower bank rates are going to make it very difficult for savers to earn money on their savings in 2009. In order for you to earn the most money you can on your savings.

These lower bank interest rates come at a bad time for individuals. Many people are moving money out of the stock market into bank accounts due to the market volatility. Additionally, as unemployment rises and more and more people are being layed off work, people need to save emergency funds more than ever. Typically, people save their emergency funds in high yield savings accounts and certificates of deposits.

You will have to do your research in 2009 to find the best bank interest rates for your savings.

By: Fred Peters

Saving Money From Income – Are You a Saver Or Spender?

admin — Sun, 22 Nov 2009 01:52:44 +0000

It certainly looks all doom and gloom at the moment doesn’t it?

Open any newspaper or tune into the news on TV and if you are anything like me, you get punch drunk with all the articles on how bad the stock market or property market is etc etc.

It may seem perverse then to write an article on savings!

However, as ever, this is an immensely important subject that affects our clients’ future security. As we view a Doctor or Dentist’s financial affairs over at least 15/20 years, we can clearly see the effect this has on their overall position.

Quite often the savings and investments they made in the early years were fairly modest, but have now built up very nicely thank you over time. This helps massively towards their ‘Financial Independence Day’- the time they can choose to stop working.

Because the service we offer to our clients includes being able to look ahead at how their lives will look in, say, 15 years time (by using cash flow forecasts), we can show how much they need to save/invest NOW so that they do not run out of money in the future.

So, looking at the big picture, are we Brits serious savers?

Well, we certainly used to be. It took some time to recover from the war, but by the mid 1950s, we started to make real progress.

Here is the average UK savings ratio for 1960-1989:

60’s – 5.65%

70’s – 7.95%

80’s – 8.65%

The peak came in the difficult winter of 1979, when the savings ratio hit an all-time high of 14.1%, or to put it another way, one in seven pounds.

Now let’s look at how well we saved in the Nineties:

1990 – 1994 – 10%

1995 – 1999 – 8.28%

Yes, we saved hard during the recession of the early Nineties, but our savings habit started to slip when the housing market took off from the mid 90s onwards. However, things have certainly taken a turn for the worse recently, as the final table shows:

The UK average savings ratio, 2000-2008:

2000 – 2003 – 5.35%

2004 – 2008 – 4.30%

So, a declining trend, and the situation gets even worse.

In the first quarter of this year, the savings ratio collapsed to 1.1%. This is £1 for every £90 earned after tax, and takes us to a 49 year low.

In the past, a squeeze on our disposable incomes would have made us look to cut back and save more. Sadly, after a twelve-year housing and credit boom, it appears that we’ve almost forgotten how to save.

Of course, the purpose of having a bit of a financial cushion was to help when the bad times came. Well, the bad times are here, and for some people it looks like the cushion that has been there in the past is no longer available.

Perhaps the more you earn the more leeway you will have. However it is our experience that the more you earn the more you spend! (It’s important to focus on how much income you’re left with at the end of the month, not necessarily how large the income is).

So, ask yourself – are YOU saving enough?

Key Considerations:

It does pay to save. If you are serious about optimizing your finances to secure your future, do look at what you can afford to save and invest.

Once this is decided make sure that this money is targeted at fulfilling your goals in life.

ACTION POINT

Ensure you have an up to date expenditure template to identify where your money is spent, and compare this to your income now and in the future by analyzing your cash flow forecast (CFF).

This is VITAL.

If you do not have a CFF, ask your adviser to build you one, and if they cannot do this find a planner who can.

Do you have the scope to save/save more? If you have – do it!

It will bring Financial Independence Day nearer!

By: Ray Prince

Saving For Hard Times

admin — Wed, 11 Nov 2009 13:01:36 +0000

Saving for rough times is a crucial part of your financial planning as having some spare cash stashed in an easily accessible place to cover disasters is a good idea. At a certain point common sense dictates that you’re going to run into an unforeseen expense and not having funds to pay for it you’re going to have to use poor borrowing practices. The average surprise cost when such events do occur is thought to run a few thousand dollars however whether it’s a gigantic amount or a very minor amount a disaster fund is needed to cover it.

You don’t need to hide this money under the mattress for it to be available. The best way to conserve this fund is by using a quick access savings account that pays a good rate of interest and hopefully is tax exempt. You could set up a simple bank transfer and allot a small amount into your bank account each pay check. You should also be sure that your savings account is low risk as you wouldn’t want to lose the money by trying for high interest payments. For example: don’t invest the money in the stock market, as stocks and shares can change in value, depriving you of much needed money at a critical moment.

Treat any interest your disaster account earns as a perk and not the main reason for having the account. In a pinch you’ll need quick easy access to your money and this is more useful than a little more money in interest can ever bet. Do not allow your disaster fund to grow into a fortune as the extra money would be more wisely invested, growing more in a better investment vehicle. Keep just enough to cover a rainy day so a few thousand should be more than enough.

Don’t be tempted to use your existing account to create up your rainy day fund. Your existing account makes it easy to “borrow” from the savings without knowing it and this usually means you won’t have enough money when you really need it. Also most checking accounts don’t pay high interest rates. To avoid the accidental spending of your disaster fund keep your checking account for normal bills and expenses.

By: Joe Duggins

Lessons Learned From Private Equity – Enhancing Performance

admin — Mon, 10 Aug 2009 12:01:46 +0000

As private equity firms become more successful, many public firms are learning how to implement these companies’ winning strategies. According to McKinsey research, about 75% of private equity firms do not experience better success than the stock market. However, the remaining 25% of these firms consistently achieve results that outperform the stock market.

This high performing group has mastered several components to enhancing performance. For example, deals in the private sector that are worth over $100 million, did not evolve because private firms paid less then market value. Instead, these private equity firms are using calculated strategies to determine which companies to purchase.

Researching Deals

Public firms can enhance success during acquisitions by investing in a strategic assessment of potential deals. This assessment is typically taken during the first few months of a deal, and accomplishes several goals:

Determining which costs to cut If there are new markets to pursue Potential portfolio changes

Once these components have been evaluated, a value creation plan can be implemented. In this plan, managers will determine the possible risks and value from acquisition activities.

Compensation Strategies

Private equity firms are highly committed to overseeing investments once the deal is closed. A method used to enhance performance is using compensation strategies to align high level managers with strategic objectives. This entices managers to invest more of their time in collaborating with the board and completing research to help set the direction of the company. According to McKinsey research, private equity partners using this strategy invested about 50% of their time three months after the deal closed. While, less successful private equity firms devoted only 15% of their time.

Successful partners also spent more time working with management to determine if staffing changes needed to be made after the deal closed. Active partners also used operation indicators to measure performance instead of standard financial measures.

Realigning Governing Structures

Although many companies use financial engineering or price arbitrage to measure performance, private equity firms are finding these tools to be less effective in current market conditions. The highest performing equity firms are adapting governance arbitrage, which involves realigning governing structures that are not aligned well.

Public Firm Challenges

Many public companies are focused on compliance instead of enhancing the effectiveness of governance. This is partially because of the growing number of regulations and codes that are evolving.

In addition, those who are not at the executive level do not always experience financial gains when the company is performing well. However, if the company experiences hardship, these individuals are affected. Since these individuals are often recruited from professional management positions, they are usually more emphatic with managers than shareholders.

Spending more time on strategy and developing talented managers can help board members have a better understanding of the company’s initiatives and objectives. Currently, most executives feel that the board has limited understanding of goals and corporate strategy.

Sharing Information

Public companies can implement strategies used by private equity firms such as creating a free flow of information between managers and non-executives. This includes sharing information that is not financial in nature – like strategies and initiatives. Although public companies do not have incentives, implementing these strategies can help boost performance.

External Benchmarking

There are also external benchmarks that can be used to determine performances initiatives. For example, these benchmarks may include overhead costs, cost per unit production, manufacturing processes and purchasing. Benchmarking these areas can give a company a competitive edge.

The benchmarking process should also provide independent verification that the benchmarks are being achieved. Companies also need to evaluate how often benchmarks are created. Since this process can be time consuming and expensive, companies can reevaluate these areas every few years.

Performance Challenges

Unlike pubic firms, private equity firms can offer managers equity stakes, investment opportunities, and bonuses for meeting objectives. In fact, top managers in equity firms own up to 19% of the equity. This creates personal motives for outperforming the competition.

When a private equity firm is having difficult times, management is quick to act swiftly – spending more time with management, minimizing underperforming areas, and hiring consultants to improve performance.

Because incentives are structured differently with public firms, the strategies and actions are often less aggressive. This is an area of opportunity for public companies. Taking aggressive steps to improve performance will ensure that actions are better linked to value creation objectives.

Searching for Talent

Finding a management group that is ready for extreme change can be challenging. If executives are not completely behind the changes, they will not be effective. These leaders must also have a high level of understanding of each team’s strengths and identify weak players.

Although public companies may face challenges, learning a few lessons from private equity firms can enhance performance. Revamping the governance structure will allow public firms to compete more effectively with leading private equity firms.

Resource:
Andreas Beroutsos, Andrew Freeman and Conor F. Kehoe. “What Public Companies Can Learn from Private Equity.” McKinsey on Finance, Winter 2007.

By: Mark T. Jordan