Invest to make money, not to get rich.Written by DPB Financial
The technology boom of ‘90s romanticized “rags-to-riches” ideal that all of us dream about when investing. For those that invested $1000 in Dell at $5 during 1990, held through seven splits, then sold in March 2000 at $59, dream was a reality. That investment would have returned an amazing $1,132,800! Image making over $1 million for every thousand dollars invested. Beyond Dell, companies like EBay, Amazon.com, and many others made their investors very wealthy. Unfortunately, ‘90s provided a different investment environment than we are use to. We experienced birth of a new technology and it required new companies, jobs and consumers to fill needs of industry. Immediately, our economy had a new demand with limited supply. This led to feeding-frenzy stock purchasing that we all witnessed. Once reality settled in, too many companies were heavily leveraged, over-extended in equity, and/or did not have revenues to support their business models. The sudden collapse of mega-companies like Webvan, online grocer that wasted over $750 million, became highly responsible for economic problems that we faced earlier this century. Moral of this story: Invest to make money, not to get rich.
| | Like It Or Not, You Have A Score To Settle! (Part 1 Of 2 On Credit Scoring)Written by Www.creditandyou.com
Just when most people finish with school and can stop worrying about test scores, there’s a new kind of scoring that enters picture. It’s called credit scoring. And, its impact on your financial future can mean more to you than a college degree. Why It’s So Important: Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards and auto loans. More recently, scoring has been used to help creditors evaluate your ability to repay home mortgage loans. Precisely what is credit scoring? Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as bill-paying history, number and type of accounts you have, late payments, collection actions, outstanding debt, and age of your accounts is collected from credit applications and your credit report. Using a statistical program, creditors compare this information to credit performance of consumers with similar profiles. A scoring system awards points for each factor that helps predict who is most likely to repay a debt. Total number of points helps predict how creditworthy you are; how likely it is that you will repay a loan and make payments when due. Why is credit scoring used? Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applications objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals. To develop a model, a creditor selects a random sample of its customers (or a sample of similar customers if their sample is not large enough), and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk.
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