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25 Things I Wish I Learned Before I Opened My First Brokerage Account

Portfolio strategy, ETF investing, foreign companies “}); $$(‘#article_top_info .info_content div’)[0].insert({bottom: $(‘mover’)}); } $(‘article_top_info’).addClassName(test_version); } SeekingAlpha.Initializer.onDOMLoad(function(){ setEvents();}); Brett Arends had a great post about what he wished he’d learned before graduating high school. With a nod to Arends; things people should know about finance and investing before they start and should be reminded of every so often as they go along. When someone wants to give you free money, like your employer in your 401k, take it. Brett Arends had a great post about what he wished he’d learned before graduating high school . It was a great mix of financial nuggets, points about not wasting time or money and some other generally sound ideas. With a nod to Arends; here is my list of things people should know about finance and investing before they start and should be reminded of every so often as they go along. Don’t rack up credit card debt but if you do, make a priority of getting out quickly and then staying out. Have an emergency fund that will tide you over X number of months but don’t put it into something that can go down a lot (or at all) in value. X should equal your comfort level. When someone wants to give you free money, take it… like your employer in your 401k. Put in enough to at least max out the match. If a 10% contribution from you is matched by your employer with an additional 3% that is like getting a 30% return. Fund your Roth IRA every year in addition to a 401k or similar workplace plan. Start saving when you are young, the older you will be grateful. The more you save the more options you will have later, you have no idea what the future you might want to do so give him some flexibility. Make an extra mortgage payment every year, the future you will be grateful. Live below your means. Have respect for whatever you did to accumulate however much you have saved. Your savings is one of hopefully several byproducts of your career, don’t disrespect that effort by speculating carelessly. A great advisor will absolutely have your best interests at heart but it is not possible for that advisor to care about your money more than you. If you are going to be a do-it-yourselfer, care enough to have at least some regular engagement with markets, investment products and your portfolio. Occasionally the stock market goes down a lot and scares the hell out of a lot of people. It has happened many times before and I promise will happen again. After it goes down a lot it will then make a new high, the only variable is how long it will take. Your ability to control your emotions when others have had the hell scared out of them will be a huge determinant to your long term investing success or lack thereof. (see number 12) You don’t need to beat the market. You need an adequate savings rate, you need to avoid panic selling (see number 12) and your investments just need to be relatively close to the performance of the indexes. Proper asset allocation is crucial. Finding out you had too much in the “wrong” asset class after it just blew up is a bad place to be. Avoid investment dogma, you don’t need to take up the shield to staunchly defend an investment strategy, a diversified portfolio probably means having several different strategies. If you come to realize you are too afraid of the stock market to invest in it then you need to be prepared to save a lot more or work a lot longer. Never confuse luck with skill. It is human nature to forget what large declines feel like and then conclude “this one is different.” Have some sort of financial plan, even if it is just a spreadsheet with projections and check it regularly. Be prepared to adapt if your financial plan doesn’t end up where you expect it to. Take the time to learn how Social Security works, it is far more complicated than you realize. Take the time to learn about the 4% rule and then remember it is only a guideline. If you have retirement assets in different types of accounts then tax efficiency may dictate depleting one account and then moving on to another and that will be uncomfortable. You may think you don’t need insurance products, and maybe you don’t, but take the time to learn about them so you make an informed decision. Don’t drink soda, get a dog and then get a dog for your dog. Bonus #1 Learn as many handyman skills as you can. Bonus #2 Never underestimate the utility of duct tape. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: To the extent that this content includes references to securities, those references do not constitute an offer or solicitation to buy, sell or hold such security. AdvisorShares is a sponsor of actively managed exchange-traded funds (ETFs) and holds positions in all of its ETFs. This document should not be considered investment advice and the information contain within should not be relied upon in assessing whether or not to invest in any products mentioned. Investment in securities carries a high degree of risk which may result in investors losing all of their invested capital. Please keep in mind that a company’s past financial performance, including the performance of its share price, does not guarantee future results. To learn more about the risks with actively managed ETFs visit our website AdvisorShares.com . AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). The article has been written by Roger Nusbaum, AdvisorShares ETF Strategist. We are not receiving compensation for this article, and have no business relationship with any company whose stock is mentioned in this article. Share this article with a colleague

Public Service Enterprise: Facing A Long-Term Decline

Summary Public Service Enterprise is facing many headwinds in the form of an unsustainable business model and an aging infrastructure. The company’s continual infrastructure build out should prove to be counterproductive in the long-run. While societal electricity usage will likely increase dramatically over the next few decades, Public Service Enterprise should still feel downward pressure in the long-term. Public Service Enterprise Group (NYSE: PEG ) is currently one of the nation’s oldest and largest electric utilities. The company dominates the New Jersey electricity landscape, providing millions of individuals with electricity. The company has been one of the top performing electric utilities over the past few years, consistently beating investor expectations on many fronts. Despite all of this, PEG will likely underperform investor expectations moving forward. While PEG may continue to do well in the near-term, the company’s long-term prospects are dimmer. PEG is a diversified electric utility, which means that it incorporates all types of energy sources into its business model. While this business model makes it more competitive against non-diversified electric utilities, the company is still too highly valued at $20.74B . The energy landscape is starting to shift away from a one dominated by centralized generation, and PEG will likely be one of the first companies to feel the effects of this change. Given that PEG’s business model has remained unchanged for countless decades, the company should have a hard time adapting to changing realities. Continual Grid Build-Outs Are A Long-Term Negative PEG makes much of its money by building out grid infrastructure in order to sell more electricity. This only makes sense given that the only way to reach more residences/buildings is to expand its grid system. In fact, PEG expects to spend approximately $1.6B in 2015 on its transmission infrastructure. The company’s transmission investments are expected to continue rising moving forward, which could actually dampen the company’s long-term prospects. Such grid investments incur huge sunk costs, as PEG expects to spend $2.6B in upgrades on its electric/gas distribution and transmission systems. While this would be a great investment under the assumption that centralized methods of generation will remain at similar levels of profitability for the foreseeable future, this is far from certain. Distributed generation methods is becoming more promising by the day, especially with the progress being made in energy storage technologies. As such, these growing grid infrastructure investments could very well end up as billions of dollars in unrecoverable sunk costs. Given the rather slim margins of PEG, these investments would only be recouped if individuals continue buying electricity from the company’s power plants at current rates. With the proliferation of alternative energies, distributed generation has become more viable than ever, and could force PEG to reduce electricity costs in order to remain competitive. This will make it increasingly hard for PEG to recoup investments. Given PEG’s centralized generation model, the company needs to continue expanding and maintaining its infrastructure in order to grow. On the bright side, PEG is implementing many grid efficiency programs, which is actually conducive to distributed generation. The company is planning to spend an additional $95M on increasing energy efficiency over the next three years, although this amount is minimal in the grand scheme of things. Given that distributed generators still requires a grid to function, improving grid efficiency is a win for everyone. Regardless, PEG is still spending enormous amounts of money building out its grid, which may actually end up costing the company in the long-run. Aging Infrastructure With PEG’s aging infrastructures, increasing amounts of investments will be needed just to sustain the company’s current grid. Given that PEG has one of the oldest grid systems in the country, grid maintenance investments will likely ramp up moving forward. Even worse, these grid maintenance costs cannot be avoided, which means that more and more of PEG’s expenditures will go purely towards maintaining its current infrastructure. Such a model of centralized generation reliant on a rapidly decaying grid infrastructure is not sustainable in the long-run, and is one more reason why PEG should increasingly lose revenue to distributed forms of generation. On top of this, many policies restrict PEG from entering into the distributed energy game due to concerns about monopoly power abuse. For instance, regulators rightly fear that utilities will enter the distributed power game for the sole purpose of eliminating the competition to keep the centralized generation model dominant. This scenario is realistic given that such utilities already have countless billions of dollars invested in centralized power plants. The United States has some of the oldest electric grid infrastructures among the developed nations. PEG is no exception in this regard, and is planning to spend billions over the next few years just on upgrading/maintaining its grid. Source: tdworld The Silver Lining Unless PEG finds an alternative business model that is not reliant upon building out an aging infrastructure, the company will find itself in trouble. Unfortunately, the company has no real solution to this problem. In the best case scenario, PEG shifts its business model to become more conducive to distributed generators like rooftop solar by focusing more heavily on grid efficiency. In the worst case scenario, PEG ends up in a utility death spiral as a result of its current business model. The main point is that a business model dependent upon continually building out infrastructure to grow profits is not sustainable in the long-run. The good news for PEG is that the timeline for distributed generations rise is uncertain. While there are many reasons to believe that this model will overtake centralized generation in the future, this could happen much later than expected. Also, the future energy landscape could be a healthy mix between centralized and distributed generation, in which case PEG can still maintain a large portion of its revenues. Not only that, total future electric use could easily grow multifold due to the increasing electrification of the society(i.e. electric transport). The energy used in transportation alone is approximately equivalent to the energy used by households. This essentially means that PEG’s future may not be so pessimistic even if distributed generation starts to play a much larger role in the energy landscape. PEG’s annual revenue( $11.26B for 2014) could grow immensely if electric use were to indeed skyrocket in the long-term. Although PEG may look undervalued in this light, there still seems to be too many headwinds facing the company. With all things considered, PEG will likely still underperform the market over time. Conclusion From a rapidly aging infrastructure to the rise of distributed generation, PEG’s prospects are not looking great. The company has experienced an overall trend of declining profits over the last couple of years, which should only continue moving forward. Although PEG’s net income spiked in 2014 to $1.52B, the company will likely experience declining net incomes moving forward. While PEG’s business model has remained essentially unchanged for countless decades, this will almost certainly change in the future. Even assuming that electricity usage increases significantly over the next few decades, PEG’s P/E ratio of 12 is still much too high given current trends. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Use Dividend Stocks And ETFs To Augment Long-Term Returns

Long-term investors should use high-quality dividend stocks and ETFs. Dividend stocks provide greater total returns, with dividend reinvestment, over the long term. While high dividends are nice, investors should also focus on high quality. Over the long term, high-quality, dividend-paying stocks and exchange-traded funds could produce outperforming results. Stocks with high dividend yields are the best way for investors to buy income in the current market, and if the positions are held over the long haul through short-term volatility, one may find the investment outperforming the overall market on a total return basis, writes Philip van Doorn for MarketWatch . For instance, the S&P 500 Dividend Aristocrats, which tracks over 50 stocks that have raised their dividends annually over at least 25 years, has outperformed the S&P 500 over long periods. Over the past 10 years, the S&P 500 Dividend Aristocrats have generated a 178% total return, with dividends reinvested. In contrast, the S&P 500 index has returned 117% over the same period. ETF investors can also track the S&P 500 Dividend Aristocrats through the ProShares S&P 500 Aristocrats ETF (NYSEArca: NOBL ) . NOBL has increased 11.4% over the past year, compared to the 10.4% gain in the S&P 500. The ETF also comes with a 1.62% 12-month yield. Additionally, research has found that high-quality, high-dividend stocks tend to outperform and produce better risk-adjusted returns. For instance, Chris Brightman, Vitali Kalesnik and Engin Kose found that among the largest 1,000 U.S. companies, a smaller group of 100 high-yield, high-profitability companies generated the highest total returns with the lowest volatility from 1964 through 2014. Brightman, Kalesnik and Kose also screened for quality, or distress risk, and accounting red flags, and found that the high-quality firms typically outperformed low-quality businesses. However, investors had to give up some dividend growth rates when picking high-quality companies. Investors can also track high-quality, high-dividend stocks through ETF options. For instance, the iShares Core High Dividend ETF (NYSEArca: HDV ) , which tracks high-quality U.S. companies that have been screened for financial health and relatively high dividends, has a 12-month yield of 3.40%. The Vanguard High Dividend Yield ETF (NYSEArca: VYM ) targets the largest and highest dividend-paying stocks and comes with a 2.84% yield. VYM does not sacrifice quality for its quest for yield. Instead, the ETF includes a blend of both approaches and includes about 50% of its assets in stocks with wide economic moats, according to Morningstar . Max Chen contributed to this article . Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.