The account provides tax benefits. The child’s parents, grandparents or any other relatives and friends can deposit money in this account provided that it doesn’t exceed the limit. The limit is going to be set at 3000 GBP per year. If the money stays in the account, it will be tax free every year. The same limitations that apply to a general ISA also apply here.

1. The scheme is open to all children who were born before 3^rd January 2011.
2. It is not available to those who have already enrolled, or are a part of, the Child Trust Fund. It is also unavailable to those children under 18 who are born before 2^nd September 2002.
3. The applicants have to be UK residents.
4. The money is kept in the account and can be withdrawn when the child has reached adulthood, without losing any tax benefits.
5. The tax savings are the same as they are for the normal ISA
6. This scheme is covered under the FSCS (Financial Services Compensation Scheme), so the account holders can be assured of their money’s safekeeping.
7. There are two types of Junior ISA Investments. One is Junior ISA investment, in which the money is kept in the form of stocks and shares. The other one is the Cash Junior ISA. A child is allowed to have one of each type.

This scheme not only provides tax incentives, but also provides a security for the child’s higher education.

Most of them might seem promising, but the truth is that a good number of these trading & investing opportunities could be extremely risky, while others are simply not as good as they look. That’s why it’s very important to know how to choose among the best especially if you want to day trade them.

When you know how to pick and approach the best hot stock trading opportunities, you are able to generate a consistent and respectable amount of money in a very short period of time.

Experienced day traders recognize that trading hot stocks on momentum can be the fastest way to make money in the stock market, especially on uncertain times like these.

You don’t necessarily have to trade momentum hot stocks all the time. But you can learn how to take advantage of them when you encounter the best opportunities for going long or for shorting them to make money when they are poised to fall down.

If You decide to day trade stocks just keep always in mind that for a trader to survive and be consistently profitable, its necessary to keep things as simple as possible. To much confusion and technical indicators will most of the time make you slow in your decisions and froze you up when a good opportunity is right in front of your screen.

In the end, stock market day trading is all about picking the best daily stock opportunities and following your buy and sell signals with ease and simplicity. Once you learn to master your trading decisions, you can aspire to produce consistent profitable results.

Intended Audience

Individuals looking to purchase a home for personal use or as an investment. As well, looking into conventional wisdom’s statement that buying a house is one of the best investments someone can make.

Summary Points to Take Away

• Why a House is good investment: (1) Forced Savings Plan (2) Leverage (3) Inflation Resistant (4) Tax Free Capital Gain (5) Control over Asset.
• Points against a House as an investment: (1) Lack of Diversification (2) Maintenance Costs (3) Historically lower returns than equities (4) Unavailable to take advantage of other opportunities (5) Limited Scope.
• Additional points to consider if planning on purchasing property for personal use: (1) Doesn’t provide any cash flow (2) No tax shelter from interest expense (3) Can get personal joy out of investment.

Analysis

Conventional wisdom states that buying a house is one of the smartest and best investments an individual can make. This article is geared towards challenging this conclusion to see whether this statement rears any truth to it.

Why a House is a Good Investment?

Forced Savings Plan

Most individuals claim that the purchase of their personal home was the best investment they’ve ever made, which is true in most cases because it is the only investment they’ve ever made. The general public struggles with saving for retirement; thus, purchasing a house assists in that problem as it forces individuals to continuously pay down the mortgage (or lose the house in a foreclosure to the bank); therefore, allows the storing of equity for the owners. This built up equity (i.e. market value of home minus remaining mortgage) can be borrowed against during their retirement years or they can downgrad into a less expensive house in order to provide some retirement funds to the owner. If individuals take a disciplined approach to saving, then the benefit of being forced to save in order to pay for a house diminishes

Leverage

Typical real estate purchase require only a 5% deposit, while the remaining amount can be borrowed through bank debt. Few alternative investments outside of real estate can the acquirer obtain such significant leverage, which can enhance investment returns.

Example, suppose that you purchased a home for $200k, for which you made a 5% deposit down ($10k). During the next few years the house appreciates in value and you sell it for $220k (10% higher than the level you purchased it). Though the return on the house is only 10%, the return to the investor based on invested funds sunk into the home ($10k) is 200% ($20k earned over $10k investment) –  that is the power of leverage. On the negative side, more debt means higher fixed monthly mortgage payments; thus, higher risk of being able to make the monthly mortgage payments. As long as cash flow is not a concern and the mortgage payments can be met – investments should be leveraged to maximize returns to the investor. Could you imagine walking into a bank and asking for $100k to invest in equities while only putting 5% down – likely to never happen, this is a major benefit of real estate ownership.

Inflation Resistant

Real estate holds its value during inflationary periods; thus, acts as a hedge against the investors other assets that aren’t protective against inflation (ex. Currency). The asset will continue to hold its buying power (store of value), which is difficult to get outside of investing in precious metals. The reason real estate holds its value is there is the same number of houses that the increased monetary supply of dollars are chasing; thus, it’ll take more dollars to purchase the houses as the supply of houses stays stagnate while the demand rises (due to the increase in the number of dollars in everyone’s hands). This can become critical given the current economic times and numerous expansions of monetary supply across many nations, which will have the aftermath affect of higher inflation.

Capital Gain is Tax Free

In Canada, every home owner is provided with a capital gain exemption on amounts earned in excess of cost for their principal residence. Only one piece of real estate can be claimed as the principal residence per individual. For example, if you owned a home and a cottage, only one of those houses upon selling could take advantage of the principal residence exemption. No other asset class has such advantageous tax reduction characteristics. Unfortunately this is a onetime event; thus, those holding numerous pieces of real estate can only apply it to one property.

Allows for Control over the Asset

Real estate is typically an investment an individual has control over (assuming you’re the majority owner – which is typically the case) by the means of the owner has the ability to increase the value of the asset, which may not be the case in most other investment opportunities. When purchasing real estate, owners can make capital improvements to the home (ex. Finished basement, new porch, etc.), which will increase the value of the property (capital appreciation) as compared to purchasing stocks or mutual funds as assets where the owner can’t take action to increase the value of those assets (unless they’re a significant owner, greater than 20% – which is typically unlikely). The ability to control an asset adds value to the owner through what is known as a control premium, as a real estate asset may be more valuable in the hands of some individuals over others.

Why a House is a Bad Investment

Lack of Diversification

Average individual thinks the stock market is very risky while investing in real estate is more of a certainty. Purchasing equities allows the owner to conveniently hedge their risk amongst various companies in numerous industries, countries, etc. The purchase of real estate doesn’t provide the ability to diversify risk away as easily unless an investor plans on owning numerous pieces of different types of properties (ex. residential, commercial, resorts, etc) across various markets (North America, Europe, etc) – which is probably very unlikely for the average investor. Purchasing real estate prevents the diversification of risk because it’s dependent on the economic, migration, and regulation trends of the local area.

For example, assume you purchased a home in Oshawa, Ontario – which is a town extremely reliant on the large manufacturing facility of General Motors (GM). Should GM cut back on production or move their facility housing prices would fall sharply as it is the biggest employer in the area; thus, demand from individuals will decline as unemployment rises and real incomes fall. With a decline in demand and supply staying stagnate (as you typically can’t “un-build” a house once it’s constructed) the price will have to shift towards in order to align demand with supply.

Real estate doesn’t allow the investor to diversify away the specific risks in the local area as compared to purchasing equities, which allows the investor to spread risk amongst investments that perform differently during different points along the business cycle. Most individuals when purchasing real estate have all their eggs in one basket.

Maintenance Costs

Transaction and maintenance costs are significantly higher for real estate investments than stocks, mutual funds, etc. When purchasing stocks costs are typically broker commissions ($20 per transaction if using an online discount broker), while when purchasing a home it is typically 2% commission on the transaction value, significantly higher than purchasing equities.

Once you purchase shares, no further cash is required from the investor unlike real estate, which requires constant annual expenditures that continue to increase the investors cash committed towards the property, such as property taxes, insurance, utilities, maintenance and repairs of the asset, etc. These are costs that real estate investors or home purchasers don’t factor into their expected return, but play a significant role as the payment of property taxes (etc.) doesn’t contribute to the value of the property for eventual sale in the hopes of capital appreciation.

Historical Lower Returns Compared to Equities

During any 20 year period throughout history, no other asset class has outperformed equities, which includes real estate. This is from the perspective of asset vs. asset without consideration of leverage and how that may enhance returns (as discussed earlier). While it is true that over the long run real estate prices go up in value, this is typically due to inflation incurred. Recent spikes in housing prices seen in the past 10 to 15 years has been due to changing demographics, specifically the baby boomer generation (who makes up largest segment of the population in North America) go through life stages at the same time (same goes for starting a family and purchasing a home and real estate investment property). The result was a large influx in demand without a corresponding increase in supply as construction requires lead time; thus, leading to rising real estate prices.

Will this high demand continue? That’s where the argument lies. Likely there will be softness felt in overall real estate demand as baby boomers already have their homes and they’re likely to either stay put, move to retirement homes or downgrade into a smaller place in order to obtain some retirement income. Immigration will continue into North America that will prop up demand, but likely not the extent to fulfill the whole in demand left by the baby boomer generation; therefore, the future appreciation in real estate properties is likely to flatten out.

Can’t Take Advantage of Available Opportunities

The purchase of a home or real estate property requires the individual to tie up a significant portion of their net worth into the property (in a lot of cases, all of it). Having all your net worth in real estate is a risky strategy as you’ll be severely impacted by movements in real estate prices as compared to having your cash tied up into several asset classes; thus, less vulnerable to swings in any one asset class. Similar to the discussion had under the “diversification” section of this article.

With the majority of an investors net worth tied up in a real estate property, there isn’t available cash to take advantage of other opportunities that come along; thus, significant opportunity costs are involved in venturing into real estate. This should be considered before purchasing an expensive personal home or making a real estate investment.

Limited Scope

Real estate is a local good, unlike gold for example – which can be bought and sold throughout the year for the same market price. An individual looking to buy a personal home or make a real estate investment doesn’t have access to all available properties as there are physical limitations to contend with. It comes down to wanting to live where you grew up or currently work or not wanting to buy a rental property far from your home in order to reduce logistical issues. For example, if you live in Toronto, Ontario and are looking to make an investment in a rental property, you’re unlikely to consider properties in Paris, France though the opportunities may be better than those surrounding Toronto due to language and logistic issues. Equities (and etc.) are globally traded and available; thus, users can take advantage of opportunities around the world; thus, their scope is not limited to the local area of their current surroundings like real estate is.

Additional Points to consider if you’re purchasing a Home for Personal Use.

Doesn’t Provide Any Cash Flow

An asset typically provides you with cash flow, i.e. puts cash in your pocket. When purchasing a home, cash only flows out (property taxes, repairs, etc.); some would argue that if it appreciates in value then it is an asset. In this instance it is only an asset when converted into cash and if that is the case, where will you live? Likely end up buying a new house, which has also gone up in value similar to your house.  This makes it difficult to realize the value of your personal home appreciation, which acts more like a liability than an asset since it takes cash out of your pocket instead of putting some in there.

Tax Deductibility of Interest

Interest expense paid due to bank loans taken to finance investment properties is deductable against income because the investor is pursuing income and tax legislation allows deduction of any expenses incurred in the pursuit of income. This is not the case for a mortgage taken out to purchase a house for personal use as the individual is not in the pursuit of income; thus, interest expense is paid with after tax dollars, with no tax shelter provided. If those funds had been borrowed to invest in equities or mutual funds, the interest would be deductable because again that would count towards the theme of pursuing income.

Can Get Personal Joy Out of It

Unlike equities and other alternative investments, the investor can’t personally use or get joy out of it as compared to purchasing a home, which the individual can live in and enjoy during the investment process. An investor who purchases shares in General Motors (GM) can’t exactly borrow and test drive cars whenever they please simply because they’re a part owner. This is a qualitative benefit that is difficult to quantify, but should be considered.

Where to go from here?

The main reason to purchase a house is to have somewhere to live and enjoy their life, don’t think of it as an investment. Buying a home isn’t a bad decision; it is the investor’s perception that may be tainted because it is important to realize that there are many arguments against a home as an investment to be considered. Don’t buy real estate property with the mindset that an individual can’t lose and that there is no better investment opportunity than to purchase a home, etc. Beware of conventional wisdom that states there is no better investment than purchasing a house.

Why this is a flaw:

Growth has its limits in resources. While physical resources are limited, mental resources are not. While this may not be true for some people, it is true for humanity in its entirety.

In addition, humans have the desire to grow, in many ways. While this may not be true for some people, it is true for humanity in its entirety. This desire motivates people to compete, both with self and with one another.

For these two reasons, many people almost constantly come up with new ideas for cost reductions, improvements, innovations or inventions. Many of these improved or new products or services other people also want to have. Whether for themselves or for others, whether to satisfy physical, intellectual, or prestige needs.

All of this creates new value, because some people are willing to pay for it, and before there was nothing like it. They want the improved or new product or service in addition to what they already have. If they cannot get it as a gift, they want it in exchange for something they value less but others, for example you, value more. Nowadays, in most nations this means an exchange for money. Therefore, growth has NO limits.

Now, what about the stock markets and high yields? The history is full of assertions of putative “experts” and journalists who claimed: “This is the end. Stock prices will not go up again.” Or, “Stock prices will not go up any further.” Or, “It will never be as crazy as this again.” Nonetheless, of course they were always proven wrong.

Why is this? See above. Overall, mental resources and human desires are unlimited! Many people almost constantly come up with new ideas, products or services, for which other people are willing to pay.

But why do we often have this strong volatility on the stock markets? Does the creation of new value really proceed in such waves? No. The movement of stock prices is the result of economics and psychology. Long-term, stock prices follow pure economics, namely the value of the stocks. But short-term stock prices follow primarily psychology.

This insight has various implications, especially these:

1. When the mood of people changes, so do the stock prices. Nevertheless, the underlying economics, the value, may have remained the same.

2. Because it is so hard to understand the psychology of people, collectively even more than individually, it is so difficult to correctly anticipate the collective mood of investors (called market mood) and hence the next price movement of individual securities.

3. Because it is far easier to understand economics, of an individual business even more than of an entire economy, it is so much easier to make profitable long-term investments than to succeed with short-term investments or even Day-Trading.

Also note, when prices have gone down, ultimately the only direction is up. Stock prices do not fall below zero. Nonetheless, individual stocks of course can fall towards zero.

But why can’t the stock market fall to zero and stay there? See above. Because overall, mental resources and human desires are unlimited!

Moreover, the worse the economic situation got, the greater your desires will be. Not straight away at the level of zero because the less you have the more you are satisfied with a little bit more. But since from the level of zero there is so much scope to grow, over time you will want to have a lot more.

Therefore, the stock market cannot fall to zero and stay there. Moreover, the lower prices fell in the past the higher the yields will be in the future.

The space for this article is limited – for a more detailed explanation, including an example, go to Affluability.com. The example is mind-blowing: It discusses a clearly limited resource (crude oil) and reveals the marvel of economics.

Conclusion:

The assertion of the mainstream is plain wrong. It is one of the many flaws of the mainstream school of thought. Growth has no limits, the stock market has no limits, and high yields on the stock markets will continue.

Before getting into further details, it is important you understand what a stock is. A stock is a paper asset that various companies use to raise money. By purchasing a stock you are becoming a part owner of the business depending on how much you purchase. So how do you know how well you and your company are doing?

Each company that has stocks is given a ticker symbol to be used as an identification tag. You can then follow your company by looking for the symbol and reading up on how they are doing. When it comes to companies selling stocks, there are a couple of different stocks including blue chip and penny stocks.

If you are going to invest in stocks, typically blue stocks are the ones you want to go with. They are the best stocks and are considered the safest for you. What makes a stock a blue chip stock is that the companies stocks are financially secure. This way you know the company is not going to go bankrupt, allowing you to safely invest a little more money than usual.

When investing in stocks you have a few options. One method is to go through the company’s direct stock purchase plan. Not every company has a direct stock purchase plan, but many do. Do your research to see which companies offer one.

A second method is using a DRIP program. Many companies that do not have a direct stock purchase plan have a dividend reinvestment plan (DRIP) you can get into. This is a great tool to allow you to grow your portfolio.

A third method is purchasing a stock through a specialized service. There are a number of companies that sell individual stocks if you want to just get your feet wet first. After purchasing a few stocks, you can then buy more later.

Everything mentioned thus far does not have to do with a broker, but getting a broker is another option. Using a broker is great if you do not want to deal with stocks directly yourself. But you do have to realize that using a broker calls for you paying a commission to pay for their fees.

If you are looking to start investing in stocks, it is important you take the time to learn about trading stocks and purchasing them. There are several different methods you can use to invest in stocks whether it is through a broker or not.