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$10.95 Freech Financial &£BOOK§ 7-0i Day a A step-by-step strategy for small investors ChuckChakrapani, M.Sc.,Ph.D.,C.I.M. 1 ^^^^J^—^^i== —«- (T ^-o- o1 i_iOQQ ^=^=^—=« — cr ca — a- CO nan z • 00 n — s- I FINANCIAL FREEDOM ON A DAY $5 Digitized by the Internet Archive 2012 in http://archive.org/details/financialfreedomOOchuc FINANCIAL FREEDOM ON A DAY $5 A step-by-step strategy for small investors Chuck Chakrapani, M.Sc, Ph.D., C.I.M. Self-Counsel Press (a division of) International Self-Counsel Press Ltd. © Copyright 1983, 1994 by StandardResearch Systems Inc. 380-26 Soho Street, Toronto, OntarioM5T 1Z7 All rights reserved. No part of—this book may be reproduced or trans—mitted in anyform by any means graphic, electronic, ormechanical withoutpermission in writingfrom thepublisher, except bya reviewerwho mayquotebrief passages in a review. Printed in Canada First edition:March, 1983 Second edition: February, 1994 Third edition:January, 1986; Reprinted: September, 1986 Fourth edition:March, 1989 Fifth edition:April, 1991; Reprinted:July, 1991;May, 1992; September, 1993 Sixth edition: December, 1994 Canadian Cataloguing in Publication Data Chakrapani, Chuck Financial freedom on $5 a day (Self-counselbusiness series) ISBN 0-88908-794-6 ISSN 0827-2522 — — 1. Investments Periodicals. 2. Speculation Periodicals. I. Title. II. Series. HG4527.C428 332.678 C84-031650-X Coverphotography by Lonnie Duka/Tony StoneImages Self-Counsel Press {a division of) International Self-Counsel Press Ltd. Head Office 1481 Charlotte Road North Vancouver, BritishColumbia V7J 1H1 U.S. Address 1704 N. State Street Bellingham, Washington 98225 CONTENTS PREFACE xiii PART YOU CAN ACHIEVE I: FINANCIAL FREEDOM 1 FINANCIAL FREEDOM: YOU CAN ACHIEVE IT 3 a. Even small investors can achieve financial freedom 3 b. Why aren't most people financially independent? 5 c. What it takes to achieve financial freedom 6 d. Dream merchants: do you want to pay them? 7 e. Getting rich slowlybut surely 9 f. Is it still $5 a day? 10 g. Five dollars a day gets you started 11 WHAT MAKES YOU WEALTHY? 12 a. What is financial freedom anyway? 12 b. How do I get there from here? 13 c. Three powerful principles 13 1. The magic ofcompounding 13 2. Dollar cost averaging 14 3. Diversification 16 d. Use the program to monitor your investments 16 PART HOW TO GET MONEY TO INVEST II: 17 HOW TO GET MONEY TO INVEST 19 a. Pay yourselffirst 19 . b. Three simple ways to save 20 1. The Minus Ten technique 20 2. The Plus Ten technique 21 3. Day's Due technique 21 c. Aim to save at least 10% ofyour income 22 d. Six ways to raise additional money for investing 23 1. Liberate the lemons 23 2. Slash your major expenses 23 3. Squeeze your budget 24 4. Reduce your taxes 24 5. Increase your return without risk 24 6. Adopt friction-free investing 24 7. Watch those windfalls 25 e. Building an investment pyramid 25 f Rules of success for the small investor 27 1. Save regularly 27 2. Invest for maximum return 28 3. Minimize your commissions 29 PART HI: HOW TO INVEST: PROFIT 31 4 GETTING STARTED 33 a. Doublejeopardy 33 b. Investments with clout 34 c. Taking responsibility 34 d. A note on specific information 35 1. Names and addresses 35 2. Tax implications 35 3. Canada and the United States 36 How e. to start investing 36 VI .. HOW TO GET HIGH INTEREST 38 How a. large investors get higher interest rates 38 b. How to get high interest rates 39 c. How tojoin a money market fund 40 d. No-load mutual funds 40 e. U.S. money market funds 40 f Canadian moneymarket funds 41 g. When to use money market funds 41 h. How to evaluate the performance ofyour fund 42 HOW TO INVEST IN STOCKS 43 a. What are shares? 43 How b. are shares traded? 44 c. How to buy and sell shares 44 How d. to find a stockbroker 44 e. How to place orders with yourbroker 45 f What else you should know 45 g. What are OTC stocks? 46 How h. to read the financial page 46 i. What is a stop-loss order? 47 How to minimize the risk 47 j. 1. Buy stocks with low price earnings (PE) ratio 47 2. Buy stocks with highbook values 47 k. Commissions: how to reduce them 48 1. Why direct investment may not be suitable for the small investor 49 m. How you canparticipate in the stock market 50 How n. to choose a fund 53 vn . HOW TO BUY STOCKS AT A DISCOUNT 7 55 a. Dividend reinvestment investment plans (DRIPs) 55 b. The advantages ofjoining a DRIP 55 c. Information on DRIP companies 56 1. Canada 56 2. United States 56 d. How tojoin a DRIP 57 e. What else should you know? 57 8 HOW TO INVEST IN BONDS 58 a. What are bonds? 58 b. Bond prices 58 c. When to buy bonds 59 d. Bonds and debentures 60 e. How to buy 60 f Bond and mortgage funds 60 g. Strips and zeros 61 h. Convertible bonds 63 1. What to look for in convertible bonds 64 2. When to buy convertible bonds 64 How 3. is the gain taxed? 65 9 HOW TO INVEST IN PREFERRED STOCKS 66 a. What is a preferred stock? 66 Why b. invest in a preferred stock? 66 c. Different kinds ofpreferred stocks 67 d. Preferred stock prices 68 e. When to buy preferred stocks 68 f. How to buy/sell preferred stocks 68 g. Using mutual funds to buy preferred stocks 68 Vlll