http://www.profitableinvestingtips.com/investing-trading/investment-and-the-time-value-of-money
Investment and the Time Value of Money
Time value is usually an expression used in options trading. When an options contract has a while to run before expiration it is said to have time value. Anything can happen so the price of the options contract may well rise or fall. Here we are concerned about investment and the time value of money. Specifically, we are concerned about inflation and the devaluation of currency. However, investment and the time value of money may also relate to a monetary crisis and deflation in which cash becomes king because it is so scarce. As regards investment and the time value of money, consider how money managers commonly seek to keep up with inflation and make a percent or two more as a conservative goal. Reasonable financial advice for the rest of us is also to pick investment vehicles and specific investments that will reliably keep ahead of inflation.
Picking Investments with Inflation in Mind
A standard means of evaluating an investment is to look at intrinsic value, especially when investing in stocks. Intrinsic stock value is the actual value of a company or stock based on the sum of future income, based on fundamental analysis, and discounted to current value. In determining intrinsic value investors use treasury bills as a benchmark as the prevailing interest rate is tied to expectations of inflation. Thus, when considering investment and the value of money, the expected rate of inflation is paramount. An investment may be growing rapidly, but if inflation is eating away at the purchasing power of the local currency, it may really be losing money over time. In our article about Three Good Offshore Investment Ideas, we look at investment opportunities in growing economies and in economies in which the currency is outperforming the US dollar, Euro, and Yen.
Growth, Stagnation, and Speculation
Microsoft was a hot stock for years. The stock value multiplied about two thousand fold from when it was first issued until the stock peaked. Now Microsoft is a huge corporation with a very secure future. However, it is essentially done growing. Considering investment and the time value of money, Microsoft is sort of like putting money in a savings account at less than a percent a year interest. The money will not go away rapidly but the purchasing power of what you have will dwindle year by year. A common means of measuring the strength of a currency is to note its buying power of a mixed basket of commodities. How much gasoline or bread can a dollar buy? How much gold and how many cars can you purchase with the Yen? The standard argument for gold, during a bull market, is that gold holds it value. However, gold is a commodity that is prone to speculation. Currently it may be time to sell gold as it seems set to fall.
1. Investment and the Time
Value of Money
By www.profitableinvestingtips.com
2. Time value is usually an
expression used in options
trading.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
3. When an options contract
has a while to run before
expiration it is said to have
time value.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
4. Anything can happen so the
price of the options contract
may well rise or fall.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
5. Here we are concerned
about investment and the
time value of money.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
6. Specifically, we are
concerned about inflation
and the devaluation of
currency.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
7. However, investment and the
time value of money may
also relate to a monetary
crisis and deflation in which
cash becomes king because
it is so scarce.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
8. As regards investment and the
time value of money, consider
how money managers
commonly seek to keep up with
inflation and make a percent or
two more as a conservative
goal.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
9. Reasonable financial advice
for the rest of us is also to
pick investment vehicles and
specific investments that will
reliably keep ahead of
inflation.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
10. Picking Investments with
Inflation in Mind
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
11. A standard means of
evaluating an investment is
to look at intrinsic
value, especially when
investing in stocks.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
12. Intrinsic stock value is the
actual value of a company or
stock based on the sum of
future income, based on
fundamental analysis, and
discounted to current value.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
13. In determining intrinsic value
investors use treasury bills
as a benchmark as the
prevailing interest rate is tied
to expectations of inflation.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
14. Thus, when considering
investment and the value of
money, the expected rate of
inflation is paramount.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
15. An investment may be
growing rapidly, but if
inflation is eating away at the
purchasing power of the
local currency, it may really
be losing money over time.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
16. In our article about Three
Good Offshore Investment
Ideas, we look at investment
opportunities in growing
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
17. economies and in economies
in which the currency is
outperforming the US
dollar, Euro, and Yen.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
18. Growth, Stagnation, and
Speculation
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
19. Microsoft was a hot stock for
years.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
20. The stock value multiplied
about two thousand fold from
when it was first issued until
the stock peaked.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
21. Now Microsoft is a huge
corporation with a very
secure future.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
22. However, it is essentially
done growing.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
23. Considering investment and
the time value of
money, Microsoft is sort of
like
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
24. putting money in a savings
account at less than a
percent a year interest.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
25. The money will not go away
rapidly but the purchasing
power of what you have will
dwindle year by year.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
26. A common means of
measuring the strength of a
currency is to note its buying
power of a mixed basket of
commodities.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
27. How much gasoline or bread
can a dollar buy?
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
28. How much gold and how
many cars can you purchase
with the Yen?
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
29. The standard argument for
gold, during a bull market, is
that gold holds it value.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
30. However, gold is a
commodity that is prone to
speculation.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
31. Currently it may be time to
sell gold as it seems set to
fall.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
32. Regarding investment and
the time value of money a
balanced approach of
precious metals,
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
33. stocks tied to
commodities, real
estate, and a sprinkling of
growth stocks may be the
best bet.
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
34. But, always do your own
fundamental analysis!
http://www.profitableinvestingtips.com/investing-trading/investment-
and-the-time-value-of-money
