Narrow Bridge Finance » Investing

Investing in the Cruise Industry

Eric — Fri, 27 Jan 2012 14:00:05 +0000

After the recent, highly publicized crash of the Costa Condordia, people around the world are looking hard at the cruise vacation industry. While everyone is focusing on the problems today, it might be a good place for you to invest for tomorrow.

Carnival Corporation

Costa, a cruise line that I have traveled on twice, is owned by Carnival Corporation (NYSE: CCL). Carnival is known for running cruises under the brands Carnival, Costa, Holland America, Princess, Seabourn, AIDA, Cunard, Ibero , and P&O Cruises. Carnival owns a tour company, 15 hotels, 395 motorcoaches, and 20 rail cars.

The brand owns dozens of ships around the world complete with casinos, bars, night clubs, excursions, and dozens of other ways to make money. Of course, running a cruise line is not cheap. The company is operating floating hotels that require fuel, staff, entertainment, maintenance, and regulatory adherence.

The company earned nearly $16 billion in revenue in fiscal 2011 and had earning per share of $2.42. The company issued a $1.00 dividend in 2011, which is about 3% of the investment value. Even better, if you are a regular cruiser, if you own 100 shares of CCL stock, you get a shipboard credit of $50, $100, or $250 depending on the length of your trip on all Carnival brands.

Royal Caribbean

Royal Caribbean Cruises Ltd. (NYSE: RCL) is another Florida based cruise operator best known for its flagship Royal Caribbean branded cruises. Royal Caribbean operates more than 40 ships under the brands Royal Caribbean, Celebrity Cruises, and Azamara Club Cruises in North America. Pullmantur operates in Spain, Portugal, and Latin America and its CDF Croisieres de France serves the French market. It is also a 50% owner in a German based cruise operator.

Royal Caribbean pulls in an annualized $9.2 billion in annual revenue based on its most recent quarter. It pays a 1.4% dividend and offers a similar shipboard credit to Carnival.

While the company looks to be in a cash flow crunch on its most recent earnings release, I believe the long term prospects for this company are bright, just like Carnival, as the economy continues to improve.

A Sunny Future?

Having been on four cruises myself, I can tell you that good weather means everything for an enjoyable cruise. Likewise, a good economy means everything for a tourism company.

Recent economic reports show that consumer spending and confidence is growing. While unemployment slowly decreases, tourism will pick up steam. As long as we stay on track for economic recovery, I think you can expect these investment opportunities to perform very well.

If you are nervous about cruises but want to invest in other tourism companies, be sure to look into the hotel and casino industries. I believe they will have similar results as the economy expands and will all offer a good opportunity for solid investment gains.

Have you ever invested in cruise companies or tourism based stocks? Do you think I am right? Please share your thoughts and experiences in the comments below.

Image by Accidental Hedonist.

Investing in the Cruise Industry is a post from: Narrow Bridge

How to Spot Investment Scams

Eric — Mon, 16 Jan 2012 14:19:16 +0000

FINRA, the major investment firm regulation organization in the United States, put together a helpful video discussing investment scams. I found the video interesting and useful. If you have any questions about investing, feel free to ask in the comments.

How to Spot Investment Scams is a post from: Narrow Bridge

Start the New Year with Solid Financial Footing

Eric — Wed, 04 Jan 2012 14:00:00 +0000

My tax preparation process for 2011 has begun, but it is not too early to start tracking for 2012. Whether you need to better track your transactions, budget, or balances, the new year is a great time to get on top of your money.

Long time readers know that I am a fan of free tools that can save you time and money. Here are a few favorites that you should check out to help keep 2012 easy to manage.

Mint.com

I always come back to Mint.com when I need to track transactions by category and budget. This has been my go-to website for tracking my finances since July, 2007. Mint allows you to easily and automatically track your bank account balances, transactions, and budgets from an easy to navigate dashboard.

On top of that, you can use Mint to motivate and track your debt or savings goals. If you are not already a user, sign up today.

Account Balances

If you want to track your financial account balances with some really cool charts at the same place as you track your mileage, reward, and point accounts, look no further than Adaptu. My friends at Adaptu have built some very useful tracking tools and the new mobile app (so far only for iPhone, but I have high hopes for an Android version coming soon) keep your balances in your pocket.

If you only want to track travel, you can try AwardWallet to track your miles and hotel points without mixing in your financial accounts.

Easy, Automatic Investing

I signed up for Betterment a few months back, and I have been thoroughly impressed with the site. It is incredibly easy to set up a small, recurring investment to build your wealth over time. I have had a modest gain and was able to think about something else while my money was at work.

If you sign up here, you can Get a $25 Account Bonus when you sign up for Betterment. Start now!

Your Favorites

What are some of your favorite tools to easily manage your finances? Any tips to help when tax time comes around next year? Please share your thoughts and experiences in the comments.

Image by myvirtuallady.

Start the New Year with Solid Financial Footing is a post from: Narrow Bridge

Investing in Precious Metals

Eric — Fri, 23 Dec 2011 14:00:38 +0000

Someone recently asked me how to get started investing in gold. Like silver, platinum, and other precious metals, investing in gold can be very lucrative if done correctly.

Historically Valuable

Some people believe gold and other metals are a safe investment because they have always been considered valuable. For thousands of years, civilizations around the world used their gold and silver as a measure of wealth and power. Today, it is still considered a benchmark in value and wealth. Even if the value of the Dollar or Euro falls, many believe gold will always be worth something.

Even until 1861, the United States government used a silver standard to ensure the value of its currency. At that time, you could trade in a dollar bill for its value in silver. Silver standards and gold standards. Through the Great Depression, many countries still used a gold standard to value their currency.

Fluctuating Prices and Risk

Like any investment, precious metals have a downside risk. Over the last ten years, gold has soared from less than $400 per ounce to a peak of about $1900 per ounce. However, if you bought in at the peak, you would have seen that value slide back to $1600 per ounce. That is a 15% drop in three months.

Some people blindly buy gold thinking it will go up forever. There are ads on the radio of famous personalities endorsing buying physical gold as an investment. I hope I am not the first to tell you that it might not work out and you can certainly lose money if you buy precious metals.

Over the last couple of years, gold has moved inversely to the stock market and economy. As news gets worst, gold rises. As the economy improves, gold falls. That creates a theory that you could use gold as a hedge to large losses in your portfolio, but there is always risk and speculation involved.

How to Buy

If I did not scare you off, you can buy precious metals several ways. The easiest (and my preferred method) is to buy an ETF that tracks the metal you want to buy. If you do buy into a metal ETF, make sure it has a high trading volume (good liquidity) so you can sell if you need to.

The most popular gold ETF is the SPDR Gold Trust (GLD) from State Street. You can buy and sell ETFs like stock and your investment gains and losses are treated similarly. A popular silver ETF is the iShares Silver Trust (SLV) from Barclays.

To purchase physical assets, you will need to go through a broker or dealer. In general, the transaction costs are high and you may have a tougher time selling for its actual value. You also have to worry about safety and insurance for physical assets, so I suggest avoiding this unless you are prepared to keep it for the long term in a safe deposit box at a bank.

Your Questions and Experiences

Do you have any questions about investing in precious metals that you want answered or stories to share? Please use the comments to let us know what you think.

Image by digitalmoneyworld

Investing in Precious Metals is a post from: Narrow Bridge

What is Goodwill on a Company Balance Sheet

Eric — Mon, 19 Dec 2011 14:00:53 +0000

When looking at company financial statements, most of the items are self-explanatory. Almost everyone can easily explain revenue, expenses, assets, and liabilities. However, some of the line items are not as clear. Someone recently asked me about goodwill on the balance sheet. It is an important line to understand when looking at a balance sheet.

Intangible Assets

When looking at a balance sheet, goodwill can be found as an asset account. Goodwill is an intangible asset, meaning an asset that cannot be sold or transferred. Cash, investments, equipment, factories, and other tangible assets are fairly easy to appraise. Intangible assets, such as patents and goodwill, are more difficult to use as a benchmark of company value.

Where Does Goodwill Come From?

Goodwill exists when a company is purchased for an amount higher than its assets. For example, if a company had fair value assets of $100 million and it was purchased for $120 million, the $20 million difference is considered goodwill. That goodwill represents the company value above its assets.

The $20 million represents the value of the company’s ongoing business. The active customers, products, and the name of the company purchased are all valuable. That value is accounted for on the purchasing company’s balance sheet.

How Investors Should Treat Goodwill

When you look at a company’s stock for purchase, you should understand how the income statement, balance sheet, and cash flow statement work and what they are telling you. Because it is an asset, goodwill increases the shareholder’s equity line on the balance sheet. Because shareholder’s equity is one judge of a company’s value to shareholders, the goodwill increases the value of the company.

However, unlike tangible assets, if a company has financial trouble, goodwill cannot be sold. In the event a company is liquidated, the value of the goodwill will never be recovered.

Because goodwill has no tangible value, a conservative investor would remove goodwill when calculating book value per share to find a more realistic value of the company. This is an important tool in fundamental analysis of a company.

Your Experiences

I know this is a fairly complex idea for beginning investors, so make sure to ask your questions in the comments. If you are a seasoned investor, how do you look at goodwill when investing?

Also, a thanks to My Personal Finance Journey for including me in this week’s Yakezie Carnival.

What is Goodwill on a Company Balance Sheet is a post from: Narrow Bridge

What Is the Best Time of the Year to Sell Stocks

Eric — Wed, 14 Dec 2011 14:00:57 +0000

As we approach the end of the year, some investors are going to try to minimize their taxes by selling stocks. Someone recently asked me when you should sell, and the answer can be complicated depending on your situation.

Offsetting a Loss

If you have sold investments in the past for a loss, the IRS will allow you to sell investments for a gain without paying taxes. For example, if you sold stock for a $1000 loss in January and you have an ETF with a $1200 gain that you want to sell, you can sell it in December and only have a tax liability for the gain on $200.

If you need that $1200 right away, it is probably smarter for you to sell in December than wait until January. Something to keep in mind, however, is that capital losses can be carried over to future years. If you were planning to keep the investment, there is no reason to rush and sell.

Offsetting a Gain

Just like in the situation above, you can offset a gain with a loss. If you sold stock in January for a $1000 gain and are holding onto a stock in the red, you can sell it in December to lower your tax liability.

Unlike capital losses, capital gains cannot be carried over to future years. You can’t defer paying taxes when you make money. If you are holding onto a stock that does not have a bright future, it might be a good idea to get rid of it before year-end.

Make Smart Decisions

In the end, you will always end up paying the net gain on your investments. Whether it is in 2012 or 2052, you will have to pay someday. It is more important to focus on the long-term value of your portfolio than game the system for tax reasons.

Unless you expect capital gains tax rates to significantly increase or decrease in the future, you should focus more on your investment decisions and just pay the taxes as they come. The IRS has complex rules for dealing with capital gains, but you should let your accountant (or TurboTax) worry about that and just focus on making money.

Your Strategy?

What do you do when it comes to capital gains taxes? Do you try to make year-end trades to lower your bill for Uncle Sam? Please share in the comments.

Image by Infrogmation.

What Is the Best Time of the Year to Sell Stocks is a post from: Narrow Bridge

Investment Strategy by Age

Eric — Fri, 11 Nov 2011 16:39:00 +0000

If you are in your 20s and your parents are near retirement, do you think you should have different investment strategies?

Of course you should!

The Early Years

Through your twenties and well into your thirties, you are a long way from needing your retirement income. When you have a 30-40 year horizon until you retire, you can invest in risky investments that have a potential for longer term growth.

At this point in your life, I would invest heavily in equities (stocks). It is a good idea to diversify; you should consider mutual funds and index funds rather than picking individual stocks. A mix of US large cap, US small cap, international, and emerging market equities should make up virtually your entire portfolio.

Mid-Career

From your 40s into your 50s, you should transition away from risky investments, such as small cap stocks and emerging markets should be a smaller focus. At this point, the large ‘blue chip’ stocks, index funds, and fixed income investment (bonds) should be your focus.

Why the change in strategy? Large cap stocks and fixed income investments are less volatile than small cap and international stocks. Because you are now 10-20 years from retirement, you can’t afford the time to bring everything back if there is a major drop in your portfolio. You can still take some risk, but it should be more calculated.

You should be mixed between equity and fixed income at this point, with a slight favorability toward the large cap stocks and index funds.

Nearing Retirement

As your late 50s and 60s come up, you should be retreating to even more stable investment options. Of course, treasury bonds will not grow as much as a stock might grow, but you can’t afford big losses in your portfolio as you near retirement.

At this point, solid blue chip stocks and index funds should make up a small portion of your portfolio while fixed income and government bonds make up the bulk of your holdings. Keeping some cash on hand is also a good idea for security.

The Golden Years

You are done with work. Mazel tov! As you enjoy a new life filled with golf and grandkids, you can’t afford to see your net worth take a hit regardless of what is happening in the markets. You can’t deal with volatility.

Move away from stocks completely, or make them a very, very small part of your portfolio. Government bonds should be the bulk of your investment holdings. You should also keep a healthy cash cushion with zero risk.

Balance Risk and Return Goals

I have always been somewhat risk averse, but that does not mean I do not take risk. I am willing to buy into foreign stocks and emerging markets due to the potential for growth, but I don’t want to see a big loss so that is a smaller holding for me.

What I think my Dad should do and what I think I should do are very different. You have to decide for yourself exactly what the right mix should be, but know that higher risk can lead to higher returns, but it is called risk for a reason.

What is your investment strategy for your retirement fund? Please share in the comments.

Image by jurvetson.

Carnivals and Such

Thanks to Barbara Friedberg for including Narrow Bridge in Carnival of Personal Finance #334: Weather’s Impact on Your Money Edition and Joe from Retire by 40 in Carnival of Personal Finance #335: Get A Prenup Edition.

Also, be sure to check out my guest post on using p2p lending for retirement income at the Social Lending Network blog.

Investment Strategy by Age is a post from: Narrow Bridge

Social Lending Options

Eric — Wed, 09 Nov 2011 16:32:13 +0000

P2P lending is making big changes in the world of lending and banking. Peer to peer lending, for those who don’t know, is a lending situation that removes the bank. It is people lending to people. I am a huge proponent of P2P lending as an investment option to help diversify your portfolio.

Prosper

Prosper was the first option for peer-to-peer lending, but it had SEC filing issues that put the company on the shelf for a short period of time. Since returning, Prosper claims lending rates as low as 6.59% (based on credit history) and 10.69% returns.

As with the other sites I discuss on this post, Prosper allows you to invest in a portion of a loan in $25 increments. You can review the loan application and decide if it is a worthwhile risk. Higher risk borrowers, determined by credit score and a number of other factors, have to pay a higher interest rate. You keep the interest and get your principle back, just like a bank. However, if the borrower stops paying, you lose out.

You can try the Prosper Marketplace to get started.

Lending Club

I have written about Lending Club many times in the past. Lending Club was one of the first major P2P options available for people like you and me to get loans at competitive rates and invest for high returns.

My net annualized return with Lending Club has been 9.83%. If you are looking for a way to beat bank account returns, bond returns, and stock market returns, this is a great way to go. Just beware that returns are contingent on your loan recipients paying you back.

Kiva

Kiva is a non-profit microlending organization that allows you to make loans to people in developing countries. Like Lending Club and Prosper, you are lending directly to people who need the money.

Unlike the others, however, Kiva is designed to help people make large improvements to their lives and businesses through small loans. I have made three Kiva loans so far and have been happy with the results. You can both make money while helping people in true needs, but the risks with international microloans are higher than LC or Prosper.

I don’t get anything from pointing people to Kiva, but if you sign up through my Kiva link I can track how many people I have referred. Give Kiva a try here.

Learn More about P2P Lending

My fellow Denver local Peter Renton maintains a great blog 100% dedicated to social lending. Be sure to check out his site, Social Lending Network, to stay on top of peer-to-peer lending news and strategies.

Image by MoneyBlogNewz.

Social Lending Options is a post from: Narrow Bridge

Fixing Your Own Economy

Eric — Fri, 21 Oct 2011 18:15:04 +0000

If you read the news today or listen to talk radio, you will most likely hear some mention of unemployment and how bad the economy is. I disagree, the economy is in great shape. You just need to look after yourself to ensure your personal economy stays on top.

Education

Education is the core to most people’s financial success. If you look at top CEOs today, almost every single one has a college degree. Many of them have master’s degrees. Most of them went to business school or have an MBA. This is not a coincidence.

If you want to keep your economy stable, you need an education and a degree that will lead to the future you want. I am thrilled that so many people want to be social workers, but a $60,000 master’s in social work from a private university will likely make you $25,000 per year. Is that warm fuzzy feeling worth it?

The same university offers an MBA for the same cost. That degree will leave you making double what a social work degree will make you.

History degrees, art degrees, English degrees, and other liberal arts do not have a bright future today. Unless you want to be a teacher or go to grad school, these degrees will help you land a job with good benefits at Starbucks. Make sure you know what you are getting into when you pick a major.

If you don’t believe me, this graph from the Department of Labor breaks down the numbers.

Savings – Emergency Fund

Even the strongest economies often hit hard times. The United States has had a Great Depression and a handful of recessions to keep us on aware of what can happen if you do not have strong momentum.

But, just like a strong economy, you can hit hard times. I know a whole lot of people from my former employer that were laid off after it was purchased by another company. People with law degrees, accounting and finance degrees, and MBAs were laid off just like everyone else.

While these people have better odds of finding a good job than someone with a high school diploma, they still have to pay the bills and support their families in until that happens.

If you are young and single, you need an emergency fund that can cover at minimum three months expenses to have as a backup for a rainy day. If you have a family to support, you should build an even bigger cushion to ensure you can make it through tough times.

Retirement and Investments

New businesses open everyday, and old businesses close everyday. Whether they were forced out by competitors or decided to close up shop to pursue other adventures, if they were run the right way, they have a good nest egg behind the operation.

You need a strong nest egg too. When you are ready to close up shop and take up a full time golf and sailing career, you need to have the cash in the bank to get you where you want to go.

I invest over 10% of each paycheck automatically into a combination of savings, investments, 401(k), and Roth IRA accounts. If you do that for the duration of your career, you should be in good shape when retirement comes around.

Insurance – Health, Life, and Everything Else

If the economy gets hit with a terrible event, the government and taxpayers have to foot the bill to keep things going. Unfortunately for you, the government and your neighbors will not hand you money to keep going when times get tough.

Make sure you have health, life, auto, homeowner, and any other insurance you need to protect yourself and your family from unforeseen catastrophe. As I recently learned, a $600 illness can cost thousands if you are not adequately covered.

Budget

If you are wondering how you are going to pay to keep your economy going strong, look no further than the trusted budget. If you keep your spending under control and focus on the end goal, you can find a balance between income and expenses that should keep your economy chugging along no matter what life brings you.

If you have never used a budget, take a look at Mint.com or Adaptu as great personal finance tracking tools that will automatically keep you on the right path.

Multiple Income Streams

Okay, okay. I know everyone’s situation is different. Maybe you don’t make enough money to support your lifestyle. While I strongly believe everyone has the ability to live below their means, many people live beyond what they can afford anyway.

You can be like me and try to turn hobbies into income and make multiple income streams. I know many stay at home moms that have built successful blogging businesses. I know full time workers that have a photography gig or weekend business. I even run a flash mob business when I am not working.

You can easily come up with a way to make more money. If you are struggling, I recommend Ramit Sethi’s Earn 1k course as a good place to start.

Don’t Forget to Have Fun

I know all of this might sound stressful and difficult, but if you make a list and knock things out one at a time, you will be all fixed up in no time.

Image by epicharmus.

Fixing Your Own Economy is a post from: Narrow Bridge

The $100k Club

Eric — Fri, 14 Oct 2011 16:37:45 +0000

I had a nice feeling this morning when I logged onto my finance aggregation tool and took a look at my net worth box. For the first time, it has six digits… before the decimal!

How I Got Here

If you look at my most recent net worth update, you can see that I was a long way off from this point just a couple of years ago.

Around December, 2010, I was nearing a net worth of zero. While I did not have credit card debt, I was mid-way through graduate school, my student loans were growing and my bank accounts were shrinking. I had more debt than cash for the first time in my life and I knew I had to keep working hard to get out.

Fast forward to January 2011. In the eleven months since my last MBA tuition payment, I paid off my car, paid off one of the two remaining student loans, dramatically increased my savings rate, and had good trajectory.

I was in a good place with my career and my cash flow, so I decided it was time to look into buying a home. I took control of my “secret down payment fund” that I had kept separate from my other financial accounts. I only used about $5,000 from that account during grad school. When I took the cash and deposited it into my savings, my net worth took a big jump, but it was sort of artificial because I knew the money was there the entire time.

The Double Jump

I was good about pressing forward in my savings and generally good about my spending over the next nine months. I saw my total net worth fall some from equity investments, but I was still on track to buy a home. My expenses rose when my lease expired and I went month to month, so I knew it was time to make a change.

I found the condo I knew would be home around that time, and I started the process of buying my first home. I negotiated a fair deal on the condo and, according to Zillow, had an instant $40,000 home equity gain.

Cash Flow

After I bought the condo, I had lower monthly cash expenses. My costs were about $300 lower per month. It was just a matter of weeks from there for my net worth to make the extra jump to $100,000.

I don’t have any plans to change my spending habits. I will put that extra $300 per month into savings first, student loans second, and my mortgage payments third. That will keep me on track to add another zero to my net worth.

Who know, maybe the million dollar club is not that far off?

Image by financialfellow1.

The $100k Club is a post from: Narrow Bridge