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3 smart things you could do with £500 right now

When you find yourself with a bit of money left over at the end of the month, it can be tempting to spend it on things such as clothes, shoes or gadgets. However, the chances are there are much better uses for that cash. If youre smart about what you do with your money now, and get it working, you could set yourself up financially for the future. With that in mind, heres a look at three ways you could invest 500 today.

Mutual funds

If youre new to investing, mutual funds can be a good place to start. The way these funds work is that your money is pooled together with the money of other investors, and then is managed by a professional fund manager. Its an easy way to invest because the hassle of researching stocks and deciding when to buy and sell is removed.

There are many different mutual funds available in the UK and if youre looking for some ideas as to the best funds, Id recommend heading over to Hargreaves Lansdown (the UKs largest investment provider) and checking out its new Wealth 50 list. This is a list of its 50 preferred funds put together by the groups investment experts. There are some excellent funds in the Wealth 50, including the Lindsell Train Global Equity fund, which has returned almost 140% in the last five years and is available with an ongoing fee of just 0.52% per year. Whether youre interested in investing in the UK, internationally, or with a niche focus, the Wealth 50 could have a good option for you that could help you boost your finances.

ETFs

Another option to consider is an exchange-traded fund (ETF). These let you track key markets or indices (such as the FTSE 100 or the S&P 500) for a very low fee. Theyre a great way to get cost-efficient exposure to the stock market.

For example, the Legal & General UK 100 Index Trust which tracks the FTSE 100 index is available on the Hargreaves Lansdown platform with a fee of just 0.06% per year. If youre looking to keep things simple and keep fees low, an ETF such as this could be the way to go.

Individual stocks

Finally, a third option to consider is buying an individual stock. If you fancy yourself as a bit of stock picker, theres nothing to stop you from investing in individual companies yourself.

Now Ill point out that this option is a little riskier than investing in a fund because funds offer more diversification. In other words, if you only buy one stock, all your eggs are in one basket.

However, at the same time, individual stocks do offer the potential for big gains. For example, look at Boohoo, or Fevertree Drinks, which are both up nearly 400% in three years. If you got in on one of these stocks three years ago with 500, your money would now be worth over 2,000.

So, if you have 500 to spare, think twice before you rush out to spend it. Invest it sensibly and you could set yourself up for the future.

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Do this one thing now and you can say goodbye to low cash ISA returns

At the present time, obtaining a return above 1.5% on a cash ISA is challenging. While a return of 1.5% may be above levels offered by providers in recent years, it continues to be poor when compared to the returns of other assets.

Although cash ISAs have proved popular among investors in recent years, the reality is that tax changes and low interest rates have made them far less appealing. For individuals who have a long-term time horizon, it may be possible to generate significantly better returns by investing in a diverse portfolio of shares.

Unappealing product

Tax changes and low interest rates mean that the return on a cash ISA versus the return on a bog-standard savings account is not much different. In the past, the tax paid on interest income meant that the tax-avoiding appeal of a cash ISA was high. However, with the first 1,000 of interest income per tax year now not subject to income tax, it means that, for most individuals, theres little benefit to having a cash ISA.

This situation has been exacerbated by low interest rates. Assuming a rate of 1.5% is available on a savings account, an individual would need to have savings of around 67,000 for it to be worth moving the money into a cash ISA. And since this would amount to several years worth of ISA allowances, it doesnt seem to be a worthwhile or practical strategy.

Improving returns?

The prospects for UK interest rates are, of course, difficult to accurately predict. Brexit could cause a delay in their rise, or a weak pound could prompt the Bank of England to adopt an increasingly hawkish strategy. Even if interest rates do rise over the medium term, theyre unlikely to increase at a rapid rate. This may mean that inflation remains ahead of the return on a cash ISA for a number of years.

The effect of interest rates on cash balances being below inflation may not be felt by individuals in the short run. Over time, though, it gradually reduces their purchasing power and makes cash savings an inefficient use of capital.

Long-term potential

In contrast, the returns on investments in the stock market are relatively appealing. On a total return basis, for example, the FTSE 250 has recorded annualised growth of over 9% during the last two decades. This would mean that an investment of 1,000 made in early 1999 would now be worth around 5,900. An investment of 1,000 in a cash ISA, which records an annual return of 1.5%, would be worth around 1,350 in 20 years time.

While theres no guarantee that the FTSE 250 will record a 9%+ return per annum over the next 20 years, history shows there appears to be a good chance that it will beat the return on a cash ISA. As such, now could be a good time to consider switching from cash to shares.

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Why I think a FTSE 100 recovery could help you make a million

Can you make a million from investing in UK shares? Many have achieved exactly that. And if you have enough time at your disposal and invest for the long term, I reckon you could do it, too.

Its often said that time in the market is what counts, not timing the market.

Warren Buffett famously urges us to seek shares in great companies at a good price rather than trying to get the timing right for the very lowest price. I certainly agree with that mainly because, like almost everyone else, Im lousy at market timing.

Start now

Having said that, I do believe that conditions in 2019 could make it one of the best years to get started, as I see a FTSE 100 recovery as being just around the corner.But what would you need to achieve to make a million?

If you can average an annual return of 6% per year, investing 525 per month, and re-investing all dividends would see you just tipping over the million pound mark in 40 years.

The best cash ISAs today, paying around 1.5% interest, would take 82 years to get you to a million.

Its worth it

Now 525 per month is not to be sneezed at. But plenty of people are paying far bigger amounts in mortgages or rents, and running expensive cars. Can you live in a modest home, drive a more modest car (or, like I do, cycle or use public transport to get everywhere)?

You might be surprised how much you can free up to put towards your millionaire aspirations.

If you can manage to invest 1,000 per month, which many really could do, the millionaire timescale would come down to 31 years at 6%. Thats a long-term horizon, sure, but if youre in your twenties and start now, you could be a retired millionaire in your fifties.

And even those in their mid-thirties today could reach the magic number aged 65.

Age 45 now? You could still retire with half a million at 65.

Beat that?

Heres what I think is key right now the FTSE 100 is paying super high dividends these days. If you spread your cash across the whole index youll be looking at a forecast 4.9% dividend yield in 2019, according to AJ Bells latest Dividend Dashboard.

And by ignoring low-dividend shares and only going for cash-rich companies which pay consistently high dividends, I think putting together a portfolio with an overall dividend yield of 6% or better is really not too much of a challenge.

That means you might be able to turn that original 525 per month into a 1m in 40 years from dividends alone, and any share price appreciation would be a bonus.

Top return

If the FTSE 100, which I reckon is seriously undervalued, does recover over the next few years, I think youd stand a very good chance of getting total returns of 8%, 9%, or even 10%, or more. Not every year for 40 years, perhaps, but locking in high dividend yields today can make a very significant difference to your long-term profits.

An average 8% annual return would turn your monthly 525 into 1m in 34 years, or 1,000 per month if you can afford it into 1m in just 26 years.

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These 2 stocks yield 10% and look unmissable bargains if we get a soft Brexit

The housebuilding sector was hit harder than most by the shock 2016 EU referendum result, and investors have been treating it with suspicion ever since.

House of horrors

They fear that if Brexit goes badly wrong, this key domestic-focused sector will take a massive hit. Other concerns include the high cost of housing squeezing out young buyers, and the sectors resulting dependence on the Government-backed Help to Buy scheme for new builds, although this has now been extended to 2023.

The result is that many house-builders have been trading at rock bottom valuations while offering outsize yields. For example, Barratt Developments was recently yielding 7.9%, while trading at just 7.7 times earnings. Taylor Wimpey has been yielding 13.1%.

Mortar to come

Two other builders,Bovis Homes Group (LSE: BVS) and Persimmon (LSE: PSN), have similarly low valuations and even higher yields. I have been bigging them up for months and sentiment now seems to be swinging in their favour.

FTSE 250-listed Bovis is up 14% over the last month, while FTSE 100 stalwart Persimmon is up 23%. Investors have been encouraged by a number of factors, includingBank of America Merrill Lynch upgrading the sector after saying risks are now priced in, while theres a general feeling that the likelihood of a cliff-edge, no-deal Brexit is beginning to fade.

Income heroes

Now investors feel a little freer to look at their underlying attractions high dividends, low valuations rather than panicking about the macro threats out there.In a further boost, both Bovis and Persimmon posted robust sets of figures this week.

Bovis said full-year profits were slightly ahead of consensus with increased sales and improved margins, and lifted its final ordinary dividend 17% to 38p.

Building bricks

Persimmons recent trading update showed a 4% rise in total revenues and completions, although average selling prices rose just 1%. The housebuilder also reported continued customer demand helped by high employment levels and competitive mortgage rates.

Naturally, there are still risks and the biggest, of course, is Brexit. What happens next is anybodys guess. But if we do crash out of the EU that could plunge housebuilders into extreme volatility. So bear that in mind, although this applies to many other investments, too.

Value plays

Given the jump in both stocks in the past month, some may wonder if theyve missed out on a buying opportunity. To a degree, the answer is yes. However, Bovis still trades at just 8.8 times forecast earnings, helped by a forecast 46% leap in earnings for 2018. It now offers a whopping forecast yield of 11%, followed by 10.7% and 10.9% over the next two respective years, which looks too good to resist if you expect a soft Brexit.

Similarly, Persimmon trades as a forecast P/E of 7.9 with a whopping forecast yield of 10.7% for each of the next three years. City analysts are forecasting a small drop in earnings over the next couple of years, so it isnt all plain sailing. This aside, both stocks still look excellent value right now. Unless our politicians completely bungle Brexit. Surely theyre not that useless, are they?

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Forget Bitcoin! I think this asset could be king in 2019

While Bitcoin may be viewed as an appealing asset from a turnaround perspective, the reality is that holding cash could be more attractive in 2019. The prospects for Bitcoin could be relatively downbeat, with a range of risks facing the global economy. Since the virtual currency is dependent upon investors being less risk averse in order to speculate on its future prospects, a deteriorating world economic outlook may cause its price to come under pressure.

Such conditions could present buying opportunities in the stock market. Already, a number of high-quality companies have seen their market valuations decline significantly. An investor holding cash may therefore be able to capitalise on this theme during the year.

Bitcoin woes

Since Bitcoin lacks fundamentals, its price is dependent upon demand from investors. During a bull market such as the one which has lasted for over a decade, this is not a problem. Investors have generally been in a bullish mood, and they have been willing to gamble on the prospects for the cryptocurrency. This led to a staggering rise in the Bitcoin price, with it increasing from $1,000 at the start of 2017 to as much as $20,000 by the end of the year.

Now, though, it trades at around $4,000. Investors are becoming increasingly cautious and are focusing to a greater degree on the return of capital, rather than the return on capital. This trend could continue as the world faces numerous risks at the present time. For example, there is the potential for a full-scale trade war between the US and China. The latters economy is also facing a continued slowdown, while Brexit may impact on the prospects for the European economy over the coming months.

Buying opportunities

The risks facing Bitcoin may also cause declines in the stock market. This has already been felt in recent months, with major global stock markets receding from record highs made in the middle part of 2018. If investors continue to adopt a cautious stance, their risk appetite may decline and cause a continuation of falling stock prices in a variety of industries.

As a result, having cash to invest could be a worthwhile move in the medium term. Certainly, with monetary policy being weak cash may offer next to no return in the short run. But it provides investors with the opportunity to capitalise on a possible market crash. Given the scale of risks currently ahead for the world economy, such a scenario would not be a major surprise to most investors.

Fundamentals

If a market crash does take place, buying high-quality stocks could be a much better move than purchasing Bitcoin. They offer track records of performance which show repeat recoveries after bear markets, as well as fundamental information on their finances that makes it possible to understand their intrinsic value. By investing in them at low prices, it may be possible to generate exceptional returns in the long run.

Capital Gains

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How I’d invest £1,000 with just 69 days to go until Brexit

Brexit is a risk which investors have had over two years to plan for. However, since the end result still seems to be no clearer than the day after the referendum was held, its proving to be a challenging threat for investors to overcome.

Of course, Brexit comes at a time when risks facing the wider global economy are high. This may mean that simply avoiding UK-focused shares is not a sound move, since global stocks may be impacted by challenges such as a rising US interest rate and a potential US-China trade war.

For many investors, though, Brexit could present a buying opportunity. While there could be volatility ahead especially for UK-focused stocks in many cases this may already have been factored into valuations.

Buying opportunities

The valuations of a range of UK-focused shares suggests that investors are expecting further challenges from Brexit. A number of banks, retailers and other industries contain companies that, in many cases, have solid balance sheets and track records of growth. However, since investors are concerned about Brexit, such companies are trading on low valuations at the present time. This could present investors with a strong buying opportunity. However, the coming months could see such stocks exhibit significant volatility, depending on how the Brexit process moves ahead.

Of course, for investors with a long-term timeframe, such volatility may not prove to be a major concern. Stock markets, such as the FTSE 100 and FTSE 250, have displayed a significant amount of volatility in the past, but have always risen to post new record highs. Therefore, while Brexit may seem to be a potential problem for investors in the short run, the reality is that it may offer the chance to generate higher returns in the long run.

International opportunities

That said, diversifying geographically is always a sound idea. Not only does it reduce risk, it also provides the opportunity to access higher rates of growth in different parts of the world economy. At the present time, for example, the emerging world continue to offer high growth rates, while the US economy is generating improving GDP growth. A number of shares in the FTSE 350 could offer exposure to such regions, thereby improving the risk/reward ratio of an investors portfolio.

Although a variety of risks face the world economy, the pullback in stock prices since last May suggests that investors have priced them in, to at least some extent. As such, and with share prices now appearing to offer wide margins of safety, it could be a good time to invest. As history shows, periods where valuations are low and risks are high often prove to be the best moments to buy. With both of those facets appearing to be in play at the present time, buying shares with Brexit just around the corner may prove to be a shrewd move.

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The average investor probably earns way below FTSE 100 returns. Here’s why

While stocks are known to generate returns of around 7-10%, on average, over the long term, research shows that the average investor earns nothing like this.

For example, a recent study in the US by consultancy firm Dalbar found that, for the 30-year period to the end of 2016, the average equity fund investor earned a return of just 4% per year. In contrast, the S&P 500 index generated returns of around 10.2% per year over the same time period. Thats a significant underperformance. I have no doubt that UK statistics are similar and that many private investors underperform the FTSE 100.

So why does the average investor underperform the market and how can they achieve higher returns?

Investor psychology

One of the main reasons the average investor dramatically underperforms the market is that investor behavior is often irrational. We all know the basics of successful investing, such as buying low and selling high, or holding onto investments for the long term. However, in reality, many investors fail to get the basics right because emotions get in the way.

All too often, when the stock market has gone up and investing feels easy, investors pile money into it (at the highs). Yet when the market drops and investing feels a little more difficult, they panic and sell out, and end up losing money. Its this classic irrational behavior that results in many investors earning returns that are substantially less than historical stock market returns.

Fees and taxes

Another reason investors underperform is that they spend too much on fees and taxes. Investment fees (trading commissions, annual fees on funds, platform fees) and taxes (stamp study) often appear negligible at first glance. However, over the long term, they really can add up and subtract a few percentage points off overall returns.

This combination of irrational behavior and high fees is a toxic mix. With many investors buying and selling at the wrong time, and incurring significant fees in the process, they really stand no chance of beating the market.

So, what can investors do to boost their returns and avoid the fate of the average investor?

Higher returns

One of the easiest ways to generate higher returns is to invest with a long-term view. In the short term, stock markets will fluctuate. However, in the long term, they tend to rise. Therefore, the longer your investment horizon, the lower your chances of losing money and the higher your chances of making a good return. Mutual fund investors who hold on to their investments have been more successful than those who try to time the market, say experts at Dalbar.

Another way to boost long-term performance is by going against the herd. In other words, buying when others are selling and taking advantage of others irrational behaviour. In the words of Warren Buffett, it can pay to be greedy when others are fearful.

Finally, its important to keep fees low. This means investing through cost-effective products, such as ETFs, low-cost funds, or individual stocks, and not over-trading.

By doing these three things, you give yourself a good chance of generating excellent long-term returns and outperforming the average investor.

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Two FTSE 250 6% dividend stocks I’d buy and forget today

When it comes to dividend investing, a 6% yield is often the perfect balance between high yield and risk. As a rule of thumb, yields above this level are more likely to be cut.

Most of my own portfolio is invested in high-yield stocks, and today I want to take a look at one of my recent purchases and at another 6%-yielder thats on my radar.

I plan to hold forever

This is one stock I hope I wont ever need to sell. Go-Ahead Group (LSE: GOG) operates buses and trains in the UK and in overseas markets including Australia, Germany, and Singapore.

In the UK, the groups operations include 5,000 buses carrying over 2m passengers each day. Through its Govia Thameslink Railway and Southeastern franchises, it also carries roughly 30% of UK rail passengers every day.

One particular appeal of this business for me was its very strong and consistent free cash flow. This is used to fund a generous dividend which hasnt been cut since the groups flotation in 1995.

I may buy more

Although Go-Ahead seems unlikely to ever become a standout growth stock, its expansion overseas does provide an opportunity for growth. In the meantime, the firms large share of the UK market convinces me that its revenue should be fairly stable over the coming years.

After a difficult few years, performance has stabilised and the shares have started to edge higher. Forecasts for 2018/19 suggest the company will report earnings of 160p per share. This puts the stock on a modest forecast P/E of 10.6.

Analysts expect a dividend of 102p for the full year, giving the stock a well-covered yield of 6%. I may buy more in the coming weeks.

A better choice than house-builders?

The outlook for the UK property market is unavoidably tied up with Brexit, causing considerable uncertainty. But, as my colleague Royston Wild recently explained, the reality is that however Brexit pans out, the UK will still have a housing shortage.

In my opinion, this is one reason to consider investing in FTSE 250 firm Ibstock (LSE: IBST), which makes bricks and concrete products. This business is in the middle of a series of changes that I think should leave it strongly positioned for the future.

Firstly, the company has sold several pieces of surplus land this year, generating a one-off gain of 9.5m. Ibstock has also sold its US business, Glen-Gery, for a total of $110m. This is expected to generate a $95m cash inflow which will be used to repay a significant chunk of the groups debt.

Back home, Ibstocks brick factories are undergoing a period of enhanced maintenance after running at maximum capacity for a number of years. This could be a short-term headwind to sales growth, but should result in more reliable and profitable long-term performance.

A complete package

In my view, the changes under way at Ibstock this year should leave the group with well-invested factories, a strong balance sheet, and the capacity for growth. Although the outlook for the UK construction market is a little unclear at this time, as a long-term investment I think the shares look good value.

Analysts forecasts for 2018/19 put the stock on a forecast price/earnings ratio of 12 for 2019, with a prospective dividend yield of about 6%. Id be happy to buy at this level.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled “The Foolish Guide To Financial Independence”, which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you’re interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?


Bothered by Brexit? A FTSE 100 dividend stock I think could help protect your wealth

Brexit was always promising to be a tough nut to crack. But the disarray that the 2016 European Union referendum has subsequently wrought among the political class in Westminster, and for businesses the length and breadth of the country has been nothing short of breathtaking.

The scale of the problem was neatly summed up by John Allan, president of the Confederation of British Industry, who this week described the situation as a national emergency and, again, warned of the dangers of a no-deal withdrawal.

I remain confident that Westminster can pull us back from the brink and save us from a disorderly Brexit. But nothing can be ruled out, of course, and a safety-first approach may be the most prudent. And a great way for share investors to insulate themselves from the trouble caused by the tense political and economic backdrop is by buying into the FTSE 100.

Heck, theres plenty of brilliant shares on Londons top-tier index that promise to make their shareholders a fortune, irrespective of how Brexit turns out. And particularly for those seeking great dividend payers.

Over and out

One of these bright income heroes I wish to talk about here is Reckitt Benckiser Group (LSE: RB). The household goods manufacturer has been making the headlines in recent days following news that chief executive Rakesh Kapoor will be leaving his post at the end of 2019, after almost a decade at the helm.

The search is now underway for a successor, the Footsie firm advised, creating no shortage of uncertainty over the direction of the business, and which caused Reckitts share price to dip. Im not concerned, though, and believe Kapoors transformative action while in the hot seat, and particularly in making it a heavyweight in the fast-growing consumer health segment, should set the company up for many years of powerful profits expansion.

Titanic names like Durex, the number-one condom brand in China, perfectly illustrate the strength of Reckitts packed portfolio of market-leading brands, as well as its bulging exposure to developing markets. These are qualities that have already underpinned the companys long track record of exceptional earnings growth.

Saving your bacon as Brexit bites

Its no surprise then, that City analysts believe it should keep the bottom line bulging, irrespective of any slowdown in the global economy. Current forecasts suggest that the Footsie firms earnings will rise 9% in 2019, and by an extra 8% next year.

Whats more, this bullishness leads to predictions that Reckitts progressive dividend policy will remain in play, too. A 168.6p per share payout is predicted for the year just passed, a figure thats anticipated to advance to 181p in 2019, and to 195.8p in 2020. And this means the company carries chubby, inflation-smashing yields of 3% and 3.3% for these respective years.

Given that the UK is responsible for just a fraction of the worlds total market for consumer goods, its no surprise then that the number crunchers are confident enough to predict further profits growth in the medium term, irrespective of the Brexit-related turbulence thats growing in the UK. In my opinion, Reckitts stable of star brands, and its broad, pan-global footprint, makes it a brilliant way to protect yourself against the political storm here on home shores.

Are You Prepared For Brexit?

Following Brexit, fear and indecision could hurt share prices in the coming months. That’s why the analysts at the Motley Fool have written a free guide called “Brexit: Your 5-Step Investor’s Survival Guide”. To get your copy of the guide, click here now!


3 tips to follow if you only have £1,000 to invest

Wed all love a dirty-great pile of cash with which to play the financial markets. But for a great many of us, the reality of rising living costs and tiny wage increases leaves us with little left over to invest at the end of the month.

Its no excuse not to take part at all, though. By following the following tips, its still possible to make decent returns on even the smallest budgets.

Diversify to succeed

Irrespective of how much you have to spend, diversification is the key to any successful share investing strategy.

If you have 100,000 to spend, you can build a broad portfolio of dozens of stocks, if you wish. However, by the time you factor in transaction costs, this just isnt a profitable strategy when youre operating on an ultra-tight budget.

One way to get around this is to invest your money into a fund that spreads your capital over a broad variety of companies, a strategy that can help to significantly reduce risk.

A word of warning, though. Picking a fund thats actively managed is more expensive than a bog-standard tracker that follows a specific stock market index. Theres also plenty of evidence to show that the expertise of a fund manager doesnt always result in bigger returns.

Watch those transaction costs

While Im on the subject, its particularly important when youve little capital to work with to squeeze every last ounce of value out of your investments.

It seems an obvious point to make, and is a critical thing for big-spending investors to remember, too. That said, its surprising to see how many share pickers get caught out by bigger-than-expected costs. By the time you add in transaction fees and stamp duty, that theoretical individual with only 1,000 to spend has already lost a sizeable chunk of their pot.

Therefore its worth shopping around to find the broker which charges the lowest fees. Some, like Hargreaves Lansdown, is one that offers a discount for multiple trades its usual fee of 11.95 per deal falls to 8.95 for between 10 and 19 trades in a month, and to 5.95 for 20, or more.

Of course this isnt applicable to those with smaller investment pots. For these individuals, Degiro is well worth a look as it offers some of the cheapest fees on the market.

Avoid volatility

As a lower cash pot significantly limits your investment possibilities, its important to pick assets that carry low levels of volatility. If youre restricted to just a couple of trades at most, its critical to make them sensible ones and not ones that are tied closely to fragile investor sentiment.

Take the cryptocurrencies space, for example. If youd invested in Bitcoin a year ago, youd have seen the value of your holdings drop by almost three-quarters. Its still falling in the first few weeks of 2019,and could keep doing so, as concerns over its true value, the transparency of the market, and the regulatory environment persist.

Even the best of us can make disastrous investment mistakes. But theres plenty of reading material out there to help you make wise investment decisions and avoid taking on too much risk. Try to do as much research as you can to make the best decision for you and your money.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled “The Foolish Guide To Financial Independence”, which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you’re interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?


Femi Ogunshakin Managing Director
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