How to Profit on Declining Stocks

Most investors purchase a stock with the expectation that the stock price will rise. If all goes according to plan, the investor would eventually sell the stock and realize a profit. But have you ever felt certain that a stock price would fall? What if there was a way you could profit from that situation? There is! It’s called short selling.

Short selling is rather simple, but many investors struggle to understand the mechanics of the process. This technique also has some different risks to consider.

What is Short Selling?

In simple terms, short selling is the selling of a stock that is owned by someone else. Even though someone else owns it, you’ve made a promise to deliver it. When you short sell a stock, the broker lends the stock to you.

The shares are sold, and the money is credited to your account. Then, you finish the transaction by purchasing the same number of shares to replace those you were ‘given’ by the broker.

If the price has dropped, you can buy the shares back for less than the original price and you make money. However, if the stock goes up, you’ll lose money.

The following steps show the mechanics for making a short sale:

1. Set up a margin account with your broker. Any broker will offer margin accounts. This type of account allows you to borrow money from the brokerage company. Your investments are used as collateral.

2. Place your order. You can either call your broker or complete the sale online. There will be a box on the website marked, “Short Sale.”

3. The broker will borrow the shares. The shares may be owned by the brokerage firm, another brokerage firm, or another investor.

4. The broker then sells those shares and puts the proceeds in your margin account. If the price falls, you can buy back the shares you sold at a lower price and keep the difference. If the price rises, you’ll be forced to cover the difference.

The Risks of Short Selling

Short selling is risky. Over time, stocks have a general upward drift. Look at the value of the stock market now compared to 50 years ago.

The downside is greater than the upside. Remember that the lower the price falls, the more money you’ll make and that the price can’t fall below zero. But, in theory, there’s no limit to how high the price can rise.

You’re also borrowing money. If the stock price rises too much, you’ll have to put more money toward the investment. If you can’t pay more, your brokerage firm will be more than happy to sell some of your other investments to cover it.

You can be totally on track, but have poor timing. The stock might be overpriced, but it can take some time for the stock price to adjust. During this waiting period, you’re potentially on the hook for interest and margin calls.


Short selling is another investing technique for your toolbox. There is more risk involved with short selling, but there can be a considerable upside. You won’t need to invest much money to control a lot of stock, since you’re leveraging your other investments.

While short selling isn’t for everyone, it provides a big opportunity for those with the risk tolerance. Consider short selling when you’re very confident that a stock value will decline.

Top 10 Money Tips for New Graduates

Many people who graduated years ago probably wish they could go back and do a few things over. Most financial challenges can be avoided by doing things in a careful way. Adopting healthy finance habits can make your future a lot easier and more enjoyable.

On the other hand, unhealthy financial habits can create challenges that take years of work to fully recover. So, get your adulthood started on a positive financial path from the beginning.

Consider incorporating these tips into your financial life as an adult:

1. Read a basic book on personal finance. Good personal finance habits aren’t complicated, but they’re very important. They’re also most effective when started early. Get a good book on this topic and read all about it. Then actually follow the advice.

2. Create a simple budget. Consider your salary and then put together a budget that makes sense for your income and expenses. Remember to set aside some money for savings and investing each month.

3. Avoid debt. Poor spending habits can cause challenging situations quickly. Avoid saddling yourself with debt. A possible exception is taking out a loan to buy a home. Debt is a dream killer because it takes years to resolve.

4. Reduce your current debt. Few things feel better than being debt-free. Your debt is a barrier to fully enjoying your future. Set up a plan to get out of debt. You’ll be glad you did!

5. Create an emergency fund. Start with the goal of setting aside three months of living expenses. If you should ever require it, you’ll be prepared and grateful to have it.

6. Begin investing as soon as possible. The greatest financial leverage young adults have is time. Even small investments can grow into incredible sums given enough time. Educate yourself about stocks and bonds and get started today.

7. Take full advantage of tax-deferred retirement accounts. It’s hard to find a better deal than a 401(k) available through your employer. Between the matching, tax deductions and tax-deferred growth, you won’t find a better investing deal around. Remember to investigate the different IRA offerings, too.

8. Leave your 401(k) alone. Many young adults come up with a reason to dip into their retirement accounts, under the guise of having enough time to make up for it later. This is a huge mistake. You’re better off doing without than having to raid your retirement funds.

9. Secure health insurance. No country has higher medical costs than the US. Because of this, many bankruptcies are due to medical expenses. Illnesses and accidents happen, so be prepared. Everyone requires health insurance to mitigate this substantial risk.

10. Spend your money on worthwhile experiences. You can’t just save like a miser. Life is short, so get out and enjoy it. It’s okay to spend some money on enjoyable experiences without being afraid. This is a big part of the reason you earn money in the first place.

Avoid the many pitfalls of developing poor personal finance habits. Mistakes made at this point in your life are recoverable, but the entire experience can still be extremely challenging.

Good habits ensure good outcomes. Your financial future can be great, if you’re willing to put a smart plan into action right now. There’s no reason to repeat the mistakes of others.

Implement these 10 tips and you’ll find your financial life will have a minimal amount of drama and challenges. Avoiding mistakes is a huge part of being successful.

The Secret to Smart Investing Decisions

Nearly everything you do on a regular basis is accomplished by following a process. You follow a certain sequence of steps to accomplish your objectives, like when you bake a cake or get ready to go to work in the morning.

Your level of success in any activity is largely dependent on the quality of your process and your ability to follow it accurately. Likewise, smart investment decisions require a solid decision-making process.

Try this sequence of steps before making your next investment decision:

1. Figure out if it’s the best use of your money. Paying off a credit card with a 22% interest rate is likely to result in a better return than any other financial investment.

* In most cases, investing is a smart move, but not always.

2. Consider whether the investment is congruent with your investing timeline. All investment goals should have a timeline. Does this potential investment match the deadline of your investment goal?

* It doesn’t make a lot of sense to invest in ultra-conservative short-term investments to achieve a goal that’s 20 years into the future.

3. Evaluate the level of risk. Is the risk level appropriate for your timeline and your comfort level?

4. Ensure you understand the investment. Some investments are extremely challenging for even financial professionals to fully grasp. Avoid being lured into investments that are beyond your current level of expertise.

* Albert Einstein once said that you may not truly understand something if you can’t explain it to your grandmother. Could you explain your investment to your grandmother and make her understand?

* It’s not easy to be successful with something you don’t understand. Seek advice from a financial expert and then try explaining your investment to someone with less financial sophistication than yourself to show you fully understand it.

* Do you know everything you need to know? Some investors have a habit of knowing 90% of what they need to know and then decide that’s ‘good enough’ because things get too tedious.

5. Ask yourself why you’re enamored with this investment. Warren Buffet once implied that if people were limited to ten investments, they would make their choices more carefully and end up extremely wealthy. Would you make this particular investment if you were limited to only ten?

* Are your investment choices based on valid reasons?
* Did your research verify your decision?
* Would you feel confident recommending this investment to a friend or family member?
* Are you guilty of any behavioral finance biases?

6. Assess what level of monitoring the investment will require. Some investments require little monitoring. However, many require constant attention.

* Are you prepared to do the necessary work and do you know how?
* Create a schedule for follow-up that’s appropriate for your investment.

7. Know when to get out of the investment. Every investor is well served by knowing when and how to get out of an investment. Know your exit strategy and the signs that it’s time to get out of an investment.

* What signs will you look for as a signal that it’s time to sell?
* Is your investment sensitive to interest rates?
* Will a change in technology render your company’s primary product or service obsolete?

Many people view investments like lottery tickets and they spend more time investigating a vacation spot than they do researching where their money is going.

Give your investments and your future the respect they deserve. Try this process before making your next investment decision. Using a good decision-making process will always give you better results.

How to Find a Global Medical Insurance Plan That’s Right for You

Living in a foreign country can be an enriching and exciting experience, but it can also have some challenges. One of the primary challenges world travelers face is regarding health insurance. While many foreign countries have excellent healthcare programs for citizens, you’re likely to find that you don’t qualify.

The most important part of finding an appropriate insurance plan is to understand the insurance itself.

Learn about the basics on global medical insurance:

1. How are the premiums determined? Just like any individual policy, premiums are based primarily on your age, medical history, and the area of coverage.

* Many plans have two separate premiums: worldwide and worldwide excluding the USA. This is due to the high cost of health care in the United States.

* Some policies will give rates for just a particular country, but you’ll only be covered for medical care in that country.

* Most policies are ‘globally portable,’ so you can use them wherever you happen to be when the need arises. However, the policy won’t provide coverage when you return to the United States.

* These policies are usually purchased on an annual basis. If you’re planning on being abroad for a relatively short period of time, a travel medical policy might be a better solution. These policies cost less, but are only in effect for a specific period of time.

2. Examine your needs. If your health is solid, you might be best served by a basic policy with a high deductible and co-pay.

* If you’re prone to health issues, it might be better to get a policy with more comprehensive coverage for the smaller bills. Increasing the coverage will also increase your premiums, but it might be worth it.

3. Consider using a broker. The cost to you is the same, but you’ll get several quotes from different companies. Compare the plans, costs, and policy specifications.

4. Know how the insurance will pay your bills. Not every policy is the same. Some policies will pay the medical provider directly, but some plans only reimburse you for your medical costs. This means that you’ll have to pay the bills with your own money before the insurance company will pay up.

5. Know the difference between a basic and a comprehensive policy. Most insurance companies will offer one or more levels or coverage. Read the information about the specific policy beforehand.

* A basic plan will generally only cover inpatient costs. These are typically going to be your more serious medical conditions and injuries. For example, a trip to the doctor for a sore throat wouldn’t be covered. Emergency surgery, however, would be.

* A comprehensive plan will cover all the items in the basic policy, but will also cover outpatient care.

6. Your pre-existing conditions may be covered. While not all pre-existing conditions are eligible for insurance coverage, in some cases, they may be. With some policies, the pre-existing condition is eligible, provided no treatment has been received in the previous 24 months.

7. Be aware of the exclusions. Unfortunately, exclusions exist and most are related to routine or elective care. Elective surgery and routine physical examinations are two such examples. There are many more, but they vary from policy to policy.

It’s never wise to be without medical insurance and being overseas is no exception. There’s a slight chance that your current policy in the US will cover you while out of the country, so check it out.

Get online, do some additional research, and pay attention to the small print. Talking to a broker is a great idea. It doesn’t increase your cost, and you’ll have an expert on your side.