Investment Guide to Mutual Fund Investing

This down-to-earth investment guide is geared to investing for beginners. In this investment guide you will learn to invest with your eyes open, plus: what mutual funds are, what kinds are available, and how to save cash when you invest money.

Investing for beginners is like learning how to swim. Not recommended: jumping in over your head in choppy waters off the coast of Maine in January to learn the butterfly stroke. Suggestion: learn to float first, getting your face wet under calm clear water.

Don’t try to learn to invest by speculating in the stock market or in the bond pits, either. Start investing in mutual funds where professionals pick the stocks and bonds for you. These funds are designed for the investing public. In my opinion, at least 95% of the investing public is best off investing here. Mutual funds simply pool money from investors and manage a portfolio of securities like stocks and bonds for the investors. You simply invest money in a lump sum, like $5000; or periodically, like $200 per month. The money you invest buys you shares in a fund.

The vast majority of funds fall into one of four categories based on what they invest in: stocks (also called equities), bonds, money market investments, and a combination of all of the above. For example, if you invest money in an equity fund, just about all of it will likely be invested in stocks.

Equity funds are the riskiest and have the greatest profit potential, with growth and perhaps some income as their primary objective. Bond funds invest in bonds to earn higher income for investors at a moderate level of risk, generally. Money market funds are the safest and pay interest rates that vary with interest rates in the economy. Balanced funds are the fourth category and invest in a balance of the other three major investment asset classes; and this makes them a great place to start investing.

Income or interest earned in a mutual fund is paid to investors in the form of dividends. Most investors simply choose to have their dividends automatically reinvested to buy additional shares in the fund in order to make their investment grow faster. What makes investing for beginners a challenge is that each general fund category has a number of varieties.

Now here’s your basic investment guide to saving money when you start investing. There are two primary costs when you invest money in funds: sales charges called LOADS, and yearly expenses. You pay a sales charge when you buy funds through a representative. For example, you write a check out for $10,000 and hand it to your financial planner who works on commission. Then, 5% comes off the top to pay for sales charges; and each year you are invested, expenses are automatically deducted from your investment. These yearly expenses can be 2% or more of the value of your investment.

Or you can buy NO-LOAD funds directly from some of the biggest and best fund companies in America and pay NO sales charges, with less than 1% a year deducted for management and other expenses. To cut costs even more go with index funds of either the stock or bond variety. Index funds simply track an index of securities, rather than trying to outperform the stock or bond market. Expenses are low because management costs are low; sometimes costing you less than ΒΌ% a year. Plus, index funds have another advantage. You won’t beat the markets, but you shouldn’t under perform them either.

Investing for beginners need not be a game of sink or swim. Call a no-load fund company that deals directly with the public and ask for a free investor starter kit. Then start investing when you feel comfortable, and save cash when you invest money. If you have a limited financial background I suggest you find and read a complete investment guide before you invest.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

The Best Investment Guide

The best investment guide would cover investment options and investment strategy. This investment guide would be complete and start with basic financial concepts and expand to include the entire universe of investments. That’s a tall order, so let’s just start with a simple version, and talk about all of the investments in the world in plain English.

Your best investment is a good, complete investment guide. I’ve been tuned in to the world of investing for 35 years and have read over 100 books on investments and investing. Most of them center on the stock market or some form of investment technique or get-rich-quick scheme. Many are time sensitive and out of date by the time you read them. Many tell you how to invest money like the author did when he made his millions.

What you seldom get with an investment guide or book is an understanding of investment basics and a simplified blueprint of your many investment options. So, here’s your simplest and free best investment guide to all of the investments in the world. There are only 4 different investments or asset classes out there depending on how you categorize things. Once you bring it down to this level you have a basic framework to work with.

CASH EQUIVALENTS and other safe investments pay interest. Either your principal or rate of interest is fixed for a period of time. Examples include U.S. Treasury bills, money market mutual funds and bank savings accounts. Advantages include high liquidity (access to your money) and safety, low risk.

BONDS are long-term debt instruments and they pay more interest income than the above. Examples include U.S. Treasury bonds, corporate bonds and bond funds of various types. Advantages include relatively high interest income with a moderate level of risk.

EQUITIES or STOCKS represent ownership in a corporation. Examples include blue chip stocks, growth stocks and equity funds. Advantages include ample liquidity, growth and some income in the form of dividends. Risk is significant and profit potential is high.

ALTERNATIVE INVESTMENTS is our final category. Examples include real estate, gold, and foreign investments. Advantages include high profit potential and an alternative to stocks when they are out of favor. Risk can be significant here as well.

That’s about as simple as an investment guide can get. All investment options can be fit into one of these asset classes. The important thing is that you have a perspective, and that you understand the investment characteristics of any investment before you invest money. For example, someone pitches an investment to you. Where does it fit in our above format?

How does it rate in terms of: safety, liquidity, growth and profit potential, income provided and risk? All investment options can be and should be rated in terms of the above to assure that they fit your needs and risk profile.

If you learn how to invest you’ll have a means of supporting yourself for the rest of your life. Once you have a sound understanding of investment basics you’ve built a great foundation for learning how to invest. The best investment guide would cover both.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

How to Invest and Prosper

Learn how to invest money and prosper; or don’t learn how to invest and continue to invest and lose money. It’s fun to invest money when you are winning. Get a financial education and see for yourself. You will NEVER feel left out once you know how to invest with a sound investment strategy. Let’s start that financial education now.

INVESTMENT BASICS

You can not put together a complete investment strategy without an understanding of the investments that are included in the package. Nor can you build your own house without knowledge of the pieces, parts, and tools required. Concentrate on investment basics before you decide on what plan to go with, or you may not be able to finish the job successfully. This means that you need to understand the investment characteristics of stocks and bonds, and how they compare to each other and to other investment alternatives.

Only then can you learn how to invest and put together a complete investment strategy. Like I said, it’s fun to invest when you’re making money; but you’ve got to start with the investment basics. Most people don’t know stocks from bonds. Start by reading articles or other publications that get down to the basics. For example: what are stocks, what are their risks and potential rewards, and how do they compare to bonds and other investment alternatives.

Now you are ready to learn about mutual funds, which are the investment of choice for most average investors. For most people they are the easiest and best way to invest in stocks and bonds, plus other asset classes. Mutual funds are simply investment packages that are professionally managed for you. To pick the right funds you’ll need to understand the asset class they invest in: stocks, bonds, money market or specialty (other).

HOW TO INVEST

Now you’re ready to learn how to invest and put the pieces together with a sound investment strategy. ASSET ALLOCATION is a crucial part of your investing and financial education, because how you allocate your money to the various asset classes will determine your success or failure… more than anything else. Simply put, how much should you invest in stocks vs. bonds vs. other investments? This is also called your asset mix. It’s much more important than what specific investments or funds you pick.

Once you’ve put a balanced portfolio of investments together you’ve got a great foundation. But if you want to continue to build and prosper you’ll need an ongoing investment strategy to make additions and changes over time as necessary. Read articles on investment strategy, asset allocation, and how to invest. It will all come together for you if you start at the beginning and build a step at a time.

Learn to invest like your financial future depends on it. With Uncle Sam in debt up to his eyeballs and employers fighting to survive, it does.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

All Credit Cards Are Good

All credit cards offer many benefits and features. Some come with a few disadvantages. To convey my point I will leave the disadvantages for others to write about. All credit cards are good in their own way for their own purpose and for that specific applicant. There are many credit cards for applicants with good credit, bad credit or with no credit at all. There are the so called “bad credit cards” and the “good credit cards.” Bad credit cards fit consumers looking to build “good credit.” Good credit cards fit consumers with good credit looking to take advantage of benefits that suit their daily lives. So are all credit cards good? Yes, because in some cases you have to start somewhere and sometimes, it comes at a price.

Consumers with good credit attract the credit cards that would better suit their income, credit history, spending habits and paying habits. Many credit cards that approach consumers with good credit tend to offer great transfer rates and lower interest rates on future purchases as long as the consumer’s credit doesn’t change in the wrong direction. Everyone has their individual needs and perceptions of their credit. So the only challenging factor for someone with good credit is to maintain the good credit status and keep a close eye on your credit limit to credit debt ratio. In my opinion, your ratio should be at around 25% to 40% because it is a responsible level to be proactive in managing your credit cards. A 25% credit limit to credit debt ratio would be $250.00 balance on a $1,000.00 credit limit. Investing in a credit monitoring service also helps to keep a third eye on your credit so you can focus on your busy life.

Consumers with bad credit attract the credit cards that seem to be outrageous because of interest rate, credit line or terms of the agreement such as annual fees and processing fees. In my opinion, their is no such thing as a bad credit card as long as they report the account to Experian, Transunion and Equifax (CSC Credit Service). Instead of them being called bad credit cards they should be called credit building cards. If you cannot get over yourself by accepting a credit building card, maybe a secured credit card from your bank would be the best choice as long as they report to the credit bureau. Never think bad credit is forever or that it can’t ever improve, it can with responsible steps. If you get a so called bad credit card then make sure you fulfill your end of the agreement, and don’t make excuses for not paying on time or letting it charge off because it was only $300.00. I think one factor that makes that type of card good is that the credit lines are usually no more than $500.00. That low of a credit line is a good thing because worst case scenario your minimum payment is between $15.00 – $25.00. Not bad for establishing a credit line that will be worth dividends in the long run. Yes, it will benefit you as time is established behind the credit card. Credit building cards are only short term because once you have began to establish yourself with 2 – 3 credit building cards your score will reflect the responsible habits and your score will begin to rise. So are bad credit cards good, of course they are.

Whether you have good or bad credit cards the responsibility is the same. Make your payments on time and watch your credit limit to credit debt ratio. These two simple steps, if followed consistently, will keep your credit cards as the good benchmark for your credit score to be based from. I have only referenced your credit cards that allow minimum payments and not any other types of credit cards or other credit lines on your credit report. I have also not referenced the impact of derogatory items on your credit report that would affect the establishing of your credit. All cards have benefits and features that are advantageous to consumers or contain hidden value, even if the card does not seem very desirable. When you decide to get any credit card base it on your own financial need and on the advantages that will benefit you and your credit profile. Credit is life and life is credit, understand it wisely.

All Credit Cards Are Good

All credit cards offer many benefits and features. Some come with a few disadvantages. To convey my point I will leave the disadvantages for others to write about. All credit cards are good in their own way for their own purpose and for that specific applicant. There are many credit cards for applicants with good credit, bad credit or with no credit at all. There are the so called “bad credit cards” and the “good credit cards.” Bad credit cards fit consumers looking to build “good credit.” Good credit cards fit consumers with good credit looking to take advantage of benefits that suit their daily lives. So are all credit cards good? Yes, because in some cases you have to start somewhere and sometimes, it comes at a price.

Consumers with good credit attract the credit cards that would better suit their income, credit history, spending habits and paying habits. Many credit cards that approach consumers with good credit tend to offer great transfer rates and lower interest rates on future purchases as long as the consumer’s credit doesn’t change in the wrong direction. Everyone has their individual needs and perceptions of their credit. So the only challenging factor for someone with good credit is to maintain the good credit status and keep a close eye on your credit limit to credit debt ratio. In my opinion, your ratio should be at around 25% to 40% because it is a responsible level to be proactive in managing your credit cards. A 25% credit limit to credit debt ratio would be $250.00 balance on a $1,000.00 credit limit. Investing in a credit monitoring service also helps to keep a third eye on your credit so you can focus on your busy life.

Consumers with bad credit attract the credit cards that seem to be outrageous because of interest rate, credit line or terms of the agreement such as annual fees and processing fees. In my opinion, their is no such thing as a bad credit card as long as they report the account to Experian, Transunion and Equifax (CSC Credit Service). Instead of them being called bad credit cards they should be called credit building cards. If you cannot get over yourself by accepting a credit building card, maybe a secured credit card from your bank would be the best choice as long as they report to the credit bureau. Never think bad credit is forever or that it can’t ever improve, it can with responsible steps. If you get a so called bad credit card then make sure you fulfill your end of the agreement, and don’t make excuses for not paying on time or letting it charge off because it was only $300.00. I think one factor that makes that type of card good is that the credit lines are usually no more than $500.00. That low of a credit line is a good thing because worst case scenario your minimum payment is between $15.00 – $25.00. Not bad for establishing a credit line that will be worth dividends in the long run. Yes, it will benefit you as time is established behind the credit card. Credit building cards are only short term because once you have began to establish yourself with 2 – 3 credit building cards your score will reflect the responsible habits and your score will begin to rise. So are bad credit cards good, of course they are.

Whether you have good or bad credit cards the responsibility is the same. Make your payments on time and watch your credit limit to credit debt ratio. These two simple steps, if followed consistently, will keep your credit cards as the good benchmark for your credit score to be based from. I have only referenced your credit cards that allow minimum payments and not any other types of credit cards or other credit lines on your credit report. I have also not referenced the impact of derogatory items on your credit report that would affect the establishing of your credit. All cards have benefits and features that are advantageous to consumers or contain hidden value, even if the card does not seem very desirable. When you decide to get any credit card base it on your own financial need and on the advantages that will benefit you and your credit profile. Credit is life and life is credit, understand it wisely.

Credit Cards For Bad Credit

Bad credit credit cards are offered by many banks as financial tools to help people establish or re-establish their good credit rating. Bad credit credit cards are primarily intended to make it easier to obtain and re-build credit, which is good for consumers and merchants as well. For all practical purposes, bad credit credit cards are just like regular credit cards, but they are specifically for high risk cardholders. If you have arrears, defaults and general bad credit score or bad credit rating, you may find that bad credit credit cards are available to you. Bad credit credit cards are considered the best choice for credit card deals if your credit score is below 550.

If you find that there are problems in approval of a traditional credit card then you can apply for other options like prepaid debit card, First Premiere Bank Cards and Orchard Cards and secured credit cards. Applying for these cards is exactly like applying for a standard credit card, with applications available on paper and online. Bad credit credit cards typically have a higher interest rate and lower credit limit than standard credit cards, but the issuers are more lenient when looking at past credit history. The fact that bad credit credit cards carry a high interest rate (most likely 20% or more) shouldn’t prevent you from getting one in an effort to get your credit back on track. Still, it is true that bad credit credit cards must be used responsibly, or your situation will just worsen.

From astronomically-high interest rates to ridiculously-exorbitant fees, erroneous information abounds. When it comes to bad credit credit cards, the myths definitely abound. In fact, bad credit credit cards are some of the most misunderstood financial tools of all time. Fortunately, the myths are oftentimes unfounded and bad credit credit cards are no longer the stigma they used to be. You might be relieved to find out that bad credit credit cards can actually have pretty decent interest rates. With so many credit card companies and so many different offers, it’s easier than ever for consumers to take advantage of reward programs. However, you must consider the factors such as financing fees, annual fees, introductory offers, credit requirements, availability of online banking, and others.

In spite of the additional fees bad credit credit cards are an excellent method for the people with bad or no credit, to improve their credit rating and to enjoy the benefits of credit cards. There are many other benefits to consider, which might be more valuable than a low rate. By paying off the monthly balance and avoiding high interest rates, you steer clear of more debt and show yourself to be a lower risk borrower over time. However, as you maintain regular payments, the creditor may gradually increase the spending limit. If you use a bad credit credit card for small purchases for a year or two and consistently pay the entire balance every month, not only will you not be charged interest, but you will rebuild your credit and be able to get lower rate loans in the future.

As you can see, bad credit credit cards are unique cards geared towards people who have had trouble getting approved for a standard unsecured credit card. However even with bad credit, its still possible to find a credit card for you, even if it means that you have to pay a slightly higher rate of interest. So if you are trying to rebuild your credit don’t think about it to much because bad credit credit cards when used properly are a cheap way to rebuild your credit.

Getting An Offshore Bank Account Via The Internet

There is no need to use the many middleman websites you will find via a search engine. Most of these are *bogus*, even the slick-looking ones. More and more banks are offering offshore bank accounts direct. Just get a list of banks in the country you’re interested in, and go to their web sites.

See the Google Open Directory here:

http://directory.google.com/Top/Business/Financial_Services/Banking_Services/Banks_and_Institutions/

and here:

http://directory.google.com/Top/Business/Financial_Services/Banking_Services/Banks_and_Institutions/Regional/

and the list at EscapeArtist.Com http://www.escapeartist.com/offshore3/banks.htm.

Opening an offshore bank account is like opening one in your high street; meet their criteria, and you’re in. The only difference is you’re not there in person.

The first thing is to find out whether they will accept citizens or residents of your country. For example, Swiss banks tend not to want US customers; they don’t want the hassle from the IRS.

You will need to prove your identity, and the legal existence of your company, if you wish to open an account for it.

If applying by mail, DO NOT PART WITH ORIGINAL DOCUMENTS. Get copies notarised by a notary public. Originals can be used for fraud or identity theft. Or they can get lost.

A Notary Public is a public officer commissioned by the State to perform notarial acts. A Notary is an impartial witness. The notary is empowered to issue an apostille.

Apostille – Is a method of certifying a document for use in another country pursuant to the 1961 Hague Convention. With this certification by apostille, a document is entitled to recognition in the country of intended use, and no certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required.

In practice this means you provide evidence to this man that you are who you say you are, and/or that your company is what you say it is. You take an oath on the Bible. That’s right, it’s not a joke.

Due diligence: Banks need to show they have checked who their customers are, and how they came by their money.

Passport – If you apply by post a notarised copy is needed;

Information about yourself – name, date of birth, address, phone number etc.

Your economic background – documents showing how you earn your money (work contract, bank statement, tax return, company documents);

Origin of your deposits – documents showing how you earned them. If you sell a house, proof of the sale, a copy of the estate agent’s listing, and so on;

Information about your deposits – how much you plan to deposit, and what you plan to do with the money once you’ve banked it.

If opening a company account, you send an apostilled copy of the certificate of incorporation to the bank providing your account, along with evidence of your identity, an application form, and any other documents they ask for.

If you want to get an offshore bank account, *consider visiting the bank in person*. If you can, travel to the country in question, and open a bank account there. You probably live near one tax haven at least. This especially applies if you are planning to deposit large sums; find out who you’re dealing with!

NOTES:

1. Don’t pay a middleman to open a bank account for you. See above.

2. Do not use services which offer bank accounts in Eastern European countries.

You are likely to be cheated, possibly by the bank itself. Avoid Latvia!

3. Do not give anyone Power Of Attorney.

You can kiss your money goodbye. You may have legitimate reasons for not wishing to broadcast what you’re doing. The problem is: *How can you obscure that you are the owner of the company, or bank account, without losing control of it?*

Don’t get too clever, or too greedy.

4. Avoid web sites where:

The business address is a P.O. Box, or a ‘Suite’;

The site is on a free web host;

The site is badly translated into English;

You have the sense you are dealing with Africans or Eastern Europeans;

The site has not been updated recently e.g. the Copyright reads 2001;

They’ve only been running for a few years;

They offer a range of dubious products – second passports, citizenships, anonymous debit cards;

You cannot pay via credit card – it’s much harder to get refunds on banker’s drafts, Western Union and e-Gold etc;

They require you sign a confidentiality agreement, or you have the sense you are entering quasi-legal or illegal territory.

Bogus offshore banking sites can threaten to report you to your tax authority if you question their methods. It’s an old con trick; get the mark involved in something illegal, then he can’t go to the authorities.

Offshore bank accounts and company formations are just like their onshore equivalents; there’s no big mystery about them. If you want a company formation, contact a local registration agent, who speaks English, in the country of registration. Then use another local agent to check what the first one’s done.

Open your bank account yourself.

One last thing: *don’t think that because your bank account and company are offshore you can do business in your home country, and/or with fellow residents, and avoid taxes there*.

You’ll find plenty of websites that’ll purport to help you, right up until the time you get a small brown envelope from your country’s tax inspectors, inviting you in for a little chat.

Benefits of Owning a Bank Note Counter

The Top Three Reasons for Owning a Bank Note Counter.

Everyone wishes that they had more time especially when running a shop and owning a bank note counter is a way to give you those precious minutes back. Many shops frequently deal with high numbers of bank notes coming in and out as well as having the time consuming task of cashing up at the end of the day. Not only are they time saving, but owning a counter can eliminate human error and give you business that extra safety net of security. Here are our top three reasons for owning a bank note counter.

-Accuracy

Bank note counters can come in different shapes and sizes. Some can be hand held and also count coins as well as notes and these tend to be more suitable for taxi drivers and small businesses. If you own a larger business that deals predominantly in cash, using a counter can eliminate the risk of human error, making counting and cashing up that bit more stress free. If you want to separate a large amount of cash into smaller amounts, you can programme a counter to do this for you, again taking away another aspect of hassle allowing you to relax knowing that the output will be correct.

-Time Saving

Part of taking some of the stress away from working is by making it less time consuming. Rather than taking hours to count your cash register, it will take only minutes. The range of bank note counter available can sort anywhere up to 1500 notes per minute perfectly accurately leaving you free to complete your other tasks.

-Security

Each bank note counter is built completely for your peace of mind. Not only can you guarantee that your money is being counted accurately, but you will be alerted if the counter detects a counterfeit note. Top of the range counters include 6-point detection including UV, Magnetic Ink, Infrared, Metal Thread, Thickness and Size detection UV, Magnetic Ink, Infrared, Metal Thread, Thickness and Size detection. These top of the range counters are accredited by the European Central Banks and the Bank of England at providing 100% at False Money Detection.

Owning a bank not counter can help you improve the efficiency of your business. Not only through saving time, but making sure counterfeit notes do not slip through the net and making your cashing up more accurate.

Would You Pay Your Bank To Not Make You a Loan?

Currently there are about $1.2 trillion in “excess reserves” in the banking system, an amount held by banks above and beyond their reserve requirements (needed to “back up” their existing customer checking account balances.) Commercial banks are free to lend it out to their customers however most banks keep their excess reserves parked at the Fed, and get paid by the Fed an annual percentage rate (APR) of 0.25 percent (25 “basis points.”) This means that the banks’ excess reserve balance grows annually by 25 basis points, a convenient way for banks to earn interest by incurring no risk. Whenever money is lent out there is a risk associated with it even if the underlying asset and the borrower are outstanding. If you’ve been wondering lately why banks are so picky with their lending guidelines you will find your answer in this article.

Few economists (mostly Austrian) pay attention to the Fed’s chairman fine print where Bernanke frequently mentions the Fed’s ability to offer higher interest rates on excess reserves. The question is why would Bernanke be prepared to entice commercial banks with higher rates to keep their money parked at the Fed?

To best answer this question we need to address the high probability of an increase in the prime rate (what commercial banks charge their best clients). So far the Fed has been able to keep this rate at extremely low levels however rising prices on commodities will most likely force the market to adjust and increase the cost of money. When rates go up the banks will want to start using their excess reserve to make new loans. The higher the rate the more eager the banks will be to earn profits from making new loans. Yet, Bernanke is prepared to do whatever it takes to stop those reserves from being used for lending.

The motive behind the Fed’s determination to keep banks from lending is hiding behind the complexity of the monetary base and its sinister expansion since the 2008 financial crises. There is a lot of talk today about the Fed’s creation of new money (out of thin air) but not enough is known – or talked – about its repercussions. Monetary expansion distorts the markets by pushing interest rates below their natural market level, it dilutes the value of currency, and it causes inflation or worse, hyperinflation.

As mentioned earlier there are $1.2 trillion in excess reserves currently parked at the Fed. The fractional-reserve banking system allows a bank to lend out $10 for each dollar it has in excess reserves. The problem is that the $10 being used for credit purpose is technically newly created money and is listed on the bank’s balance sheet. This action increases the monetary base when the credit issued in form of loans is being monetized. What Bernanke knows is that the $1.2 trillion in excess reserves could ultimately translate into an estimated $11 trillion in new money created by the banks, as they pyramid new loans on top of the base money he has injected.

Currently the money stock (M1) is at $1.9 trillion. If banks start lending out at their full potential the money stock can be increased by a factor of six. The effects of such an increase would be devastating to most Americans. If you think $4 per gallon at the pump is too much you’d rethink it if the price turns into six times $4. Can you imagine for a barrel of oil to jump from $100 to $600 in a relatively short period of time? I can and it’s not pretty! When oil prices rise the prices of all commodities usually follow. Keep in mind that salaries and wages would not follow such a huge increase in the cost of living.

So far, we haven’t seen a massive price inflation, because the banks are making very few loans. But the battle between the market and the Fed will soon show who the true winner is. The universe will prove that it is more powerful than the men at the Fed. And when the Central Bank loses its ability to suppress the rates, the commercial banks will begin using their excess reserves (currently parked at the Fed) by making new loans to their customers. When that happens, Bernanke will need to act fast to prevent banks from lending out their reserves.

History and the economic laws tell us that after long periods of discount rate suppression it is not surprising for the prime rate to escalate to 10%. In such a case banks will most likely not have a hard time deciding whether to keep their excess reserves at the Fed (for a safe.25%) or to draw them and make new loans at 10%. Substantially higher returns will be a great incentive. The Fed knows it and thus it will be willing to bribe the banks to keep them from drawing their reserves by increasing the yield it pays. Bernanke does not necessarily have to increase the yield to match the prime. If he offers a 7.25% to keep their reserves parked at the Fed, the banks would most likely accept the offer due to its ability to earn higher yields while taking no risk whatsoever.

For one thing, Bernanke and Geithner are praised for saving the financial system. Yet on the other hand, Bernanke admits that if banks started to lend out that money, he would offer them even more to stop. But by offering more money to banks the Fed’s income will substantially decrease and in this case it will remit less money to the Treasury. So, let’s do the math. On a balance of $1.2 trillion, if the Fed had to pay 7.5 percent interest, that would translate into $90 billion in annual payments to the banks. Last year the Federal reserve earned about $81 billion in net income. Out of this amount it remitted $78 billion to the Treasury. It is obvious that the $90 billion the Fed would pay the banks to not make loans would not be sufficient to cover the entire amount. What would happen in such an event not only the Treasury would stop receiving the billions from the Fed but will have to create more money to satisfy the bribe. This event would increase the federal deficit and the taxpayers would ultimately be the ones paying bankers to not give them loans.

This solution to “solve” the problem is one of the very few the Fed has at this time. Bernanke appears to be more inclined to go with this one versus the other two (pulling the reserves out of the system or change the fractional reserve banking system to a full reserve system.) Yet those “remedies” would cause the economy to fall into a depression much sooner. His approach does not necessarily mean that an economic depression could be avoided. All it does is to postpone the inevitable and defer it for a later time. With the elections being just around the corner the Fed (and the politicians) need to make us believe that everything is OK. Therefore the more subtle solution is to prevent banks from lending their excess reserves by paying them a yield. The yield is currently very low (.25%) but if needed, as always the taxpayers will come to the rescue. Ultimately people will pay the banks to not make them loans.

How To Reap Huge Benefits From Bank Owned Foreclosure Homes

The “Top-Down” and “Bottom-Up” approach to Bank Owned Foreclosure Properties

Buying bank owned properties is one of the best ways for wholesale buyers to find discounted bargain homes that can be passed on to rehabbers for a small fee. Rehabbers can benefit greatly from wholesale buyer’s service: Identifying and negotiating a lucrative deal. Banks are very motivated sellers, although most of the time, they don’t act like it. But that can quickly change, once the reality of a flat or declining market and rising inventory on their books sets in.

What are the best strategies to find bank owned properties?

There are two general concepts that you should follow in your foreclosure and wholesale business model: “Top-Down”, and “Bottom-Up”. Which concept applies depends on the bank’s listing tactic.

“Top-Down”

The “Top-Down” approach is more common. You apply this when the bank lists the property on the Multiple Listing Service (MLS) at or near the “fair market value”. Usually nothing happens for a while, until the bank lowers the price, and lowers the price again… and then again. – In a declining market this can go on for months and is referred to as “Chasing Down the Market”. Once the listing is at least 90 days old, and has already been reduced a few times, you will make a cash offer at a wholesale price level.

Your goal as wholesale buyer is to get an offer accepted that is so much below the listing price that you will be able to flip the property to a rehabber. The total price to the rehabber should be below the current listing price, once you’ve added your “assignment” fee.

“Bottom-Up”

The other strategy, “Bottom-Up”, applies when the bank lists the property at an extremely low price right on the first day of the listing. That occurs less frequently, and most of the time the property is in really bad shape – red tagged by the city or attached to some other major problem, like fire damage etc. When the bank has the guts to list the property very low, it often happens that rehabbers will bid up the price.

It is very important to scan the MLS every day for new listings because “Bottom-Up” listings usually don’t last very long at all but are sold within days.

With this strategy, too, you are looking to get an offer accepted that is low enough to flip the property to a rehabber.

How can a foreclosure wholesale buyer make money?

No matter if your strategy is “Bottom-Up” or “Top-Down”, as a wholesale buyer you go through the tedious process of finding the properties that have to be sold.

Some banks (and other sellers) may hold out longer to try and find a retail or move-in buyer. Others seem to have a policy (or an asset manager) that doesn’t allow them to sell below a certain percentage of the “perceived value”.

Rehabbers and other buyers rarely have (or take) the time to make as many offers as it can take to get a lucrative deal directly from the bank. So it adds real value to the market place when the wholesale buyer hammers out the best deals and supplies them to the local rehabbers or owner occupied buyers.

One of the great advantages of buying bank owned properties is that you have virtually no advertising overhead finding the deals, because the motivated sellers are readily available with a search on the MLS. You can work with your own buyers agent when making offers. It doesn’t make a difference to your bottom line cost, and a good agent will help you find better properties and streamline the offer process.