Your first step in the portfolio allocation should be to decide how much of your money should be in stocks.Most use financial planners and not a simple formula.They simply subtract your age from the current figure 110.That give the financial planner a rough estimate of how much of their funds must be in the public market.The specific percentage will be based on individual risk tolerance.Your risk tolerance, basically, is the amount of risk you're willing to take their money and still be able to sleep in night.Financial know planners are asking for a list of several questions regarding their finances.The rest of the funds not allocated to the stock exchange will be allocated to other assets classes.Examples includes funds money market, fixed income instruments like bonds and certificates of deposit, and other types of assets such as real estate and commodities.
The next step would be to assign then the people part of its funds among the population categories.An investor should try to cast a wide net as possible.Over time, diversification has proved a valuable tool in the different stages of rights different sectors of economic cycle of falling values within and outside favor.Your portfolio should contain two main types of stocks, growth and value of stock holdings.
Growth stocks are stocks of companies with bright prospects for the future and, therefore, whose earnings are rising prices inevitably rapidly.Stock a business income in the long term.Some examples of these types of stocks would be technology and biotechnology companies.
Value of inventory stocks of companies that are growing more slowly, but also steadier.Their valuations are much lower than for growth stocks.Famed investor Warren Buffet is a buyer of these types of stocks.Some examples of these types of stocks would be the infrastructure stocks such as utilities and consumer stocks such as Nestle.
Your stock portfolio should be broken down further in both U.S. and international stocks.The total market capitalization of U.S. stock market has fallen to 45%, less than half the market capitalization of the other world stock markets biggest mistake that some financial planners is not enough to make the placement of a person's assets in international stocks.This was not as important in the past, but is now economy.There world is the rapid industrialization occurring in many parts of the globe.There are literally billions of people quickly climb the economic scale.Rapid average economic growth of fast growth revenue for the companies that will inevitably mean a rapid growth in stock prices of companies.It would not be a wise decision to ignore the rest of the world and keep their money exclusively in the U.S. .
If you follow these simple basics as part of your overall financial plan their meeting long-term financial goals should be within their reach.
Thursday, November 20, 2008
Monday, November 17, 2008
If you want to know how to make money fast and do not have much to begin with then here's how in 3 easy steps. It's easy and anyone can do it, lets look at how ...
The key to leverage higher profits
If you have small quantities so as to make it grow is leverage.
Suppose you have $ 500.00 but you can borrow 200 X this amount so that you could invest $ 100000, of course, increase their ability to benefit dramatically.
In the business that we shall see below, you can do this and as soon as depositing funds, the influence is yours - requires no credit check!
You can do the above by opening an online account for trade and currencies do not worry if you do not know anything about currency trading, can learn a method (anyone can) and making huge profits by around 30 minutes daily.
Let's see how we can use this medium to their advantage, with a proven plan.
One method that works and continues to work
Let me ask you a question ...
Could ground repetitive patterns at a price chart with a little practice? Of course we can and this is the way to trade currencies, simply watching and acting on high probability operations, looking at the letters and learning of the rightist formations.
This is a skill learned and around a couple of weeks, you will be in line with the currencies of online commerce.
Now making money always requires effort and is a key need to learn in this business to get elite minority to gain.
Success depends on you and Down to their mentality.
If you have a burning desire to succeed, you are already part of the way - but in this business you need something else, you need discipline
You need discipline to reduce the loss of trades and execute the winners. Discipline is the key to success, you must have and maintain their losses smaller deal with their influence.
In currency trading can lose 70% of the time and still make triple-digit gains, this influence is increasingly working for you and your farm, while the winners of his court losers.
You will have to keep their emotions and egos in check, if you can do this and focus on the long term can do a lot of money.
The road to financial freedom Anyone can learn
The foreign exchange trading is the ideal way to earn money in small holdings and leverage and proven plan, you can make a great second income, or even a change of life.
The foreign exchange trading is open to all and an opportunity to make fast money in small holdings. With few weeks of study and work 30 minutes a day, there's no better way to build wealth.
So now he knows how to make money fast and the rest depends on you - good luck!
The key to leverage higher profits
If you have small quantities so as to make it grow is leverage.
Suppose you have $ 500.00 but you can borrow 200 X this amount so that you could invest $ 100000, of course, increase their ability to benefit dramatically.
In the business that we shall see below, you can do this and as soon as depositing funds, the influence is yours - requires no credit check!
You can do the above by opening an online account for trade and currencies do not worry if you do not know anything about currency trading, can learn a method (anyone can) and making huge profits by around 30 minutes daily.
Let's see how we can use this medium to their advantage, with a proven plan.
One method that works and continues to work
Let me ask you a question ...
Could ground repetitive patterns at a price chart with a little practice? Of course we can and this is the way to trade currencies, simply watching and acting on high probability operations, looking at the letters and learning of the rightist formations.
This is a skill learned and around a couple of weeks, you will be in line with the currencies of online commerce.
Now making money always requires effort and is a key need to learn in this business to get elite minority to gain.
Success depends on you and Down to their mentality.
If you have a burning desire to succeed, you are already part of the way - but in this business you need something else, you need discipline
You need discipline to reduce the loss of trades and execute the winners. Discipline is the key to success, you must have and maintain their losses smaller deal with their influence.
In currency trading can lose 70% of the time and still make triple-digit gains, this influence is increasingly working for you and your farm, while the winners of his court losers.
You will have to keep their emotions and egos in check, if you can do this and focus on the long term can do a lot of money.
The road to financial freedom Anyone can learn
The foreign exchange trading is the ideal way to earn money in small holdings and leverage and proven plan, you can make a great second income, or even a change of life.
The foreign exchange trading is open to all and an opportunity to make fast money in small holdings. With few weeks of study and work 30 minutes a day, there's no better way to build wealth.
So now he knows how to make money fast and the rest depends on you - good luck!
Wednesday, November 12, 2008
Unfinished Home - Another Excellent Investment Opportunity
Many investors success I came across your investment began with the purchase of an unfinished house. In fact, the first property I bought my current home. When I went for the option of unfinished home, many people tried to dissuade me. I went mainly to this option since I was just having less money to invest. I could bring down the monthly mortgage payment at a lower level due to this purchase.
In this process of my purchase I have unfinished house with a large and the foundation for what could add up to making current home. I really realized the benefits of purchasing the unfinished house and after that purchase, when I became a professional full-time real estate that I made my mind to invest at least a quarter of investment in housing unfinished
Most houses unfinished come up with outstanding. Before going to try to do much more investment is needed to complete the house altogether. You must carefully evaluate the majority of roofs, plumbing, electrical, flooring and top frame. These issues could have been left as unfinished.
You can simply go through the approved plan of the house and whether it can waive some of the planned additions, such as garages or rooms, you can save a lot of money. There will be many ways to save the necessary equity in search of the plans carefully.
You have to follow some tips on his mind. When builders plan for a house on a piece of property, are added all kinds of structures and attachments to it. Creation of properties is really a good business, which has lucrative return, and that is why all builders how they want to go further additions. This is one of the main reasons why companies want to build the house as per plans.
I can you little caution. Before concluding the agreement for a property unfinished, you have to make sure that banks accept the property to mortgage loans.
Banks, in general, the only facility offering mortgages to the properties, which are in habitable conditions and also meet local standards and codes.
This means that the unfinished house should have finished living facilities as rooms, lounges and other essential rooms. If the property in question lacks any of these in good living conditions, banks do not issue mortgage loans.
It is a duty for an unfinished house to borrow money from banks to have a completely finished bottom with full landscaping. Some banks do not entertain the application for mortgage on homes because they feel that faces problems for sale, if the owner become a defaulter.
Banks have very strict rules for approving loans for housing unfinished. Therefore, it is better for you to check with the bank executives before making a deal. If you can spend some money, you can invest for the beautification and landscaping of the property to attract banks.
The purchase of an unfinished house is a better option for people to enter this lucrative field of real estate. You can save a lot of money, while the house is unfinished. House unfinished is a way to enter the property market and is a majestic route to enter the modern high real estate investment portfolio.
To obtain a return unfinished home, you can talk to the manufacturer for the option. You can view the plans and avoid some threadbare area, which is not urgently needed. This can avoid much of the cost and also the property becomes affordable for you. With less investment, it benefited from a beautiful house with an absolute living conditions.
In this process of my purchase I have unfinished house with a large and the foundation for what could add up to making current home. I really realized the benefits of purchasing the unfinished house and after that purchase, when I became a professional full-time real estate that I made my mind to invest at least a quarter of investment in housing unfinished
Most houses unfinished come up with outstanding. Before going to try to do much more investment is needed to complete the house altogether. You must carefully evaluate the majority of roofs, plumbing, electrical, flooring and top frame. These issues could have been left as unfinished.
You can simply go through the approved plan of the house and whether it can waive some of the planned additions, such as garages or rooms, you can save a lot of money. There will be many ways to save the necessary equity in search of the plans carefully.
You have to follow some tips on his mind. When builders plan for a house on a piece of property, are added all kinds of structures and attachments to it. Creation of properties is really a good business, which has lucrative return, and that is why all builders how they want to go further additions. This is one of the main reasons why companies want to build the house as per plans.
I can you little caution. Before concluding the agreement for a property unfinished, you have to make sure that banks accept the property to mortgage loans.
Banks, in general, the only facility offering mortgages to the properties, which are in habitable conditions and also meet local standards and codes.
This means that the unfinished house should have finished living facilities as rooms, lounges and other essential rooms. If the property in question lacks any of these in good living conditions, banks do not issue mortgage loans.
It is a duty for an unfinished house to borrow money from banks to have a completely finished bottom with full landscaping. Some banks do not entertain the application for mortgage on homes because they feel that faces problems for sale, if the owner become a defaulter.
Banks have very strict rules for approving loans for housing unfinished. Therefore, it is better for you to check with the bank executives before making a deal. If you can spend some money, you can invest for the beautification and landscaping of the property to attract banks.
The purchase of an unfinished house is a better option for people to enter this lucrative field of real estate. You can save a lot of money, while the house is unfinished. House unfinished is a way to enter the property market and is a majestic route to enter the modern high real estate investment portfolio.
To obtain a return unfinished home, you can talk to the manufacturer for the option. You can view the plans and avoid some threadbare area, which is not urgently needed. This can avoid much of the cost and also the property becomes affordable for you. With less investment, it benefited from a beautiful house with an absolute living conditions.
Wednesday, November 5, 2008
Getting Started in Real Estate Investment in a Cold Market
From real estate investment has become a hot topic in the last decade or so. -- Could it be investors seem to be around every corner. They attend seminars, classes buy the DVD and study investment in the property market religiously.
The world of investment real estate seems to be a unique and exciting realm where only a privileged few are successful. If you've always wanted to be part of this world, you may feel that you are too late, now that the real estate market has taken a sharp turn downward.
However, still may be possible to start a successful real estate investment career, even in a sluggish real estate market. The most important point to remember is that the real estate investment is not all about buying a house, improve it, and the sale immediately. There are many facets in the world of real estate investment.
One of the most stable real estate investment in a weak or unstable housing market is rental properties. A bad real estate market means that fewer people are buying their homes and more people are for rent. Being the owner of a rental property can put in a position to be a successful real estate investor very quickly.
Renting your property allows you to build equity, while his tenant basically makes the mortgage payments for you. You will be caught if he can not find a tenant for a period of time, but this is not very likely. In a slow market where buyers are afraid to buy, you will not be at a loss for people who want to live in a house without a mortgage.
If you are patient and do not need to turn a profit immediately, today 's sluggish property market opens a variety of opportunities for you. Homes are being closed every day, and many owners are desperate to get rid of their property before it is closed. You can buy a property as a real estate investment closed well below their value. If you have a great opportunity and a lot of money in savings, it may even snatch one of these properties with a sale in cash. You do not need a mortgage and can cling to the property until the market starts to look up.
For the moment, you can do home improvement that will make it more desirable to prospective buyers. Then you can expect a better moment before putting it back into the market and enjoy a profit ordered by improving the property. This real estate investment tactic is not for beginners or those of weak heart, but it is effective.
In real estate investment, as in most other types of investments, yields the greatest risk bigger reward. If you are willing to go out on a limb and invest in a property not immediately give a profit, it is very likely to come out well ahead in the future. If you're looking for a lower risk investment, the rental of his property is a fantastic option in a sluggish real estate market.
From real estate investment is not as complicated as some investors would like to believe. This is a good choice and know the risks they are taking. If you are willing to jump and start real estate investment, do not forget that today 's market cold scare you off. Just think of it as an opportunity to get their feet wet.
The world of investment real estate seems to be a unique and exciting realm where only a privileged few are successful. If you've always wanted to be part of this world, you may feel that you are too late, now that the real estate market has taken a sharp turn downward.
However, still may be possible to start a successful real estate investment career, even in a sluggish real estate market. The most important point to remember is that the real estate investment is not all about buying a house, improve it, and the sale immediately. There are many facets in the world of real estate investment.
One of the most stable real estate investment in a weak or unstable housing market is rental properties. A bad real estate market means that fewer people are buying their homes and more people are for rent. Being the owner of a rental property can put in a position to be a successful real estate investor very quickly.
Renting your property allows you to build equity, while his tenant basically makes the mortgage payments for you. You will be caught if he can not find a tenant for a period of time, but this is not very likely. In a slow market where buyers are afraid to buy, you will not be at a loss for people who want to live in a house without a mortgage.
If you are patient and do not need to turn a profit immediately, today 's sluggish property market opens a variety of opportunities for you. Homes are being closed every day, and many owners are desperate to get rid of their property before it is closed. You can buy a property as a real estate investment closed well below their value. If you have a great opportunity and a lot of money in savings, it may even snatch one of these properties with a sale in cash. You do not need a mortgage and can cling to the property until the market starts to look up.
For the moment, you can do home improvement that will make it more desirable to prospective buyers. Then you can expect a better moment before putting it back into the market and enjoy a profit ordered by improving the property. This real estate investment tactic is not for beginners or those of weak heart, but it is effective.
In real estate investment, as in most other types of investments, yields the greatest risk bigger reward. If you are willing to go out on a limb and invest in a property not immediately give a profit, it is very likely to come out well ahead in the future. If you're looking for a lower risk investment, the rental of his property is a fantastic option in a sluggish real estate market.
From real estate investment is not as complicated as some investors would like to believe. This is a good choice and know the risks they are taking. If you are willing to jump and start real estate investment, do not forget that today 's market cold scare you off. Just think of it as an opportunity to get their feet wet.
Wednesday, October 29, 2008
Preventing Investment Mistakes: Ten Risk Minimizers
Most investment errors are caused by misunderstanding of basic equity markets invalid and performance expectations. Markets move in totally unpredictable cyclical patterns of varying length and breadth. To assess the performance of the two major classes of investment securities to be made separately, because they belong to different purposes. Bolsa capital investment is expected to deliver realized capital gains, income producing investments are expected to generate cash flow.
Losing money on an investment can not be the result of an investment mistake, and not all mistakes result in monetary losses. But errors occur more frequently when the sentence is unduly influenced by emotions such as fear and greed, hindsightful observations, and short-term market value comparisons unrelated to the numbers. His own misconceptions about how to react to different values economic, political, and hysterical circumstances are its most cruel enemy.
Master these ten risk-minimizers to improve its long-term investment performance:
1. Develop an investment plan. Identify realistic goals that include considerations of time, risk tolerance, and future income requirements --- think of where you are going before you start moving in the wrong direction. A well thought out plan does not require frequent adjustments. A well-managed plan will not be susceptible to the addition of fashion speculation.
2. Learn to distinguish between the diversification and asset allocation decisions. The asset allocation portfolio divided between equity and income securities. Diversification is a strategy which limits the size of each portfolio holdings in at least three different ways. Neither is a hedge, or a market timing devices. Neither can be done precisely with mutual funds, and both are handled more efficiently by using an approach to cost basis, as the Working Capital Model.
3. Be patient with your plan. Although investing is always referred to as long-term, is rarely treated as such by investors, the media, or financial advisors. Never change direction frequently, and always gradual rather than drastic adjustments. In the short term the market value movements should not be compared with the United Nations related to the portfolio of indexes and averages. There is an index that compares with your portfolio, and the timing sub-divisions have no relationship whatever the market, interest rates or economic cycles.
4. Never fall in love with a guarantee, especially when the company was once her employer. It 's alarming how often accounting and other professionals refuse to fix the outcome of a single item portfolios. Apart from the question of love, this becomes an unwilling to pay the taxes problem that often brings the unrealized gain on Schedule D, in reality the loss. Non-profit, either in classes of securities, should not be ever. A target profit should be established as part of its plan.
5. Preventing the "paralysis of analysis" short-circuit its decision-making power. An overdose of information cause confusion, in hindsight, the inability to distinguish between research and sales materials --- very often the same document. A little limited in the information that supports a logical and well-documented investment strategy will be more productive in the long run. Avoid future predictors.
6. Record, erase, throw out the window any shortcuts or tricks that are supposed to requirements for stock picking success with minimal effort. Do not let your portfolio becomes a hodgepodge of investment funds, index ETFs, associations, pence, hedges, shorts, bands, metals, grains, options, currencies, etc. of consumers with products obsession underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; selecting securities investors.
7. Attend a seminar on expectations of interest rates (IRE) values and learn to deal appropriately sensitive to changes in market value --- in any direction. The earnings on your portfolio should be viewed separately from the growth portion. Line below market value, changes must wait and belief, did not react with any fear or greed. From debt does not mean fixed price. Few investors never realize (in either sense) the full power of this part of his portfolio.
8. Ignore Mother Nature 's evil twin daughters, speculation and pessimism. They with you in buying surge in the market and panic when prices fall, ignoring the cyclical opportunities offered Momma. Never buy at all times high prices or the overloading of the portfolio with existing stocks of history. Buy good companies, gradually, to lower prices and avoid the kind of investor 's buy high, sell low frustration.
9. Step away from calendar year, the market value of thinking. Most mistakes involve investment horizon realistic, and / or oranges with apples "comparisons of performance. The make you rich slowly path is an investment more reliable road that Wall Street has allowed to become too much, if not abandoned. Portfolio growth is rarely a straight up arrow and comparisons with short-term rates are unrelated, with an average of strategies or simply produce detours that speed progress away from original portfolio goals.
10. Avoid cheap, easy, confusion, the most popular, knowing the future, and one size fits all. No gifts or sure things on Wall Street, and you lost more conventional stocks and bonds, the more risk you are adding to their portfolio. When cheap is an investor 's main concern, what he gets is usually worth the price.
Compounding the problems that investors are faced with managing their investment portfolios is the sensationalism of the media that contributes to the process. Step away from calendar year, the market value of thinking. The investment is a personal project where individual and family goals and objectives must dictate portfolio structure, management strategy, and performance assessment techniques.
Is Most individual investors have difficulty in an environment that encourages instant gratification, supports all forms of speculation, and would be shortsighted reports, reactions, and achievements? Yup.
Losing money on an investment can not be the result of an investment mistake, and not all mistakes result in monetary losses. But errors occur more frequently when the sentence is unduly influenced by emotions such as fear and greed, hindsightful observations, and short-term market value comparisons unrelated to the numbers. His own misconceptions about how to react to different values economic, political, and hysterical circumstances are its most cruel enemy.
Master these ten risk-minimizers to improve its long-term investment performance:
1. Develop an investment plan. Identify realistic goals that include considerations of time, risk tolerance, and future income requirements --- think of where you are going before you start moving in the wrong direction. A well thought out plan does not require frequent adjustments. A well-managed plan will not be susceptible to the addition of fashion speculation.
2. Learn to distinguish between the diversification and asset allocation decisions. The asset allocation portfolio divided between equity and income securities. Diversification is a strategy which limits the size of each portfolio holdings in at least three different ways. Neither is a hedge, or a market timing devices. Neither can be done precisely with mutual funds, and both are handled more efficiently by using an approach to cost basis, as the Working Capital Model.
3. Be patient with your plan. Although investing is always referred to as long-term, is rarely treated as such by investors, the media, or financial advisors. Never change direction frequently, and always gradual rather than drastic adjustments. In the short term the market value movements should not be compared with the United Nations related to the portfolio of indexes and averages. There is an index that compares with your portfolio, and the timing sub-divisions have no relationship whatever the market, interest rates or economic cycles.
4. Never fall in love with a guarantee, especially when the company was once her employer. It 's alarming how often accounting and other professionals refuse to fix the outcome of a single item portfolios. Apart from the question of love, this becomes an unwilling to pay the taxes problem that often brings the unrealized gain on Schedule D, in reality the loss. Non-profit, either in classes of securities, should not be ever. A target profit should be established as part of its plan.
5. Preventing the "paralysis of analysis" short-circuit its decision-making power. An overdose of information cause confusion, in hindsight, the inability to distinguish between research and sales materials --- very often the same document. A little limited in the information that supports a logical and well-documented investment strategy will be more productive in the long run. Avoid future predictors.
6. Record, erase, throw out the window any shortcuts or tricks that are supposed to requirements for stock picking success with minimal effort. Do not let your portfolio becomes a hodgepodge of investment funds, index ETFs, associations, pence, hedges, shorts, bands, metals, grains, options, currencies, etc. of consumers with products obsession underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; selecting securities investors.
7. Attend a seminar on expectations of interest rates (IRE) values and learn to deal appropriately sensitive to changes in market value --- in any direction. The earnings on your portfolio should be viewed separately from the growth portion. Line below market value, changes must wait and belief, did not react with any fear or greed. From debt does not mean fixed price. Few investors never realize (in either sense) the full power of this part of his portfolio.
8. Ignore Mother Nature 's evil twin daughters, speculation and pessimism. They with you in buying surge in the market and panic when prices fall, ignoring the cyclical opportunities offered Momma. Never buy at all times high prices or the overloading of the portfolio with existing stocks of history. Buy good companies, gradually, to lower prices and avoid the kind of investor 's buy high, sell low frustration.
9. Step away from calendar year, the market value of thinking. Most mistakes involve investment horizon realistic, and / or oranges with apples "comparisons of performance. The make you rich slowly path is an investment more reliable road that Wall Street has allowed to become too much, if not abandoned. Portfolio growth is rarely a straight up arrow and comparisons with short-term rates are unrelated, with an average of strategies or simply produce detours that speed progress away from original portfolio goals.
10. Avoid cheap, easy, confusion, the most popular, knowing the future, and one size fits all. No gifts or sure things on Wall Street, and you lost more conventional stocks and bonds, the more risk you are adding to their portfolio. When cheap is an investor 's main concern, what he gets is usually worth the price.
Compounding the problems that investors are faced with managing their investment portfolios is the sensationalism of the media that contributes to the process. Step away from calendar year, the market value of thinking. The investment is a personal project where individual and family goals and objectives must dictate portfolio structure, management strategy, and performance assessment techniques.
Is Most individual investors have difficulty in an environment that encourages instant gratification, supports all forms of speculation, and would be shortsighted reports, reactions, and achievements? Yup.
Wednesday, October 22, 2008
Retirement - Investing in Bonds
With regard to financial planning for retirement many people are focused on different types of accounts that can be used in that defer or avoid paying taxes for a short time, but very few people to discuss things in depth which can invest those funds that you have so carefully squirrel away important for the day that has come in the dark dank future that seems as if they never arrive.
The bonds are not the typical high-risk investment of high-performance, but it is very likely to make a profit for you. If you're not in a position to straight to pension funds is a slow and steady way to build a decent retirement for you over time. If you are in the last minute is an investment strategy that could be more than a little too timid for their specific needs. There are other more investment strategies that will be discussed elsewhere.
There are essentially three types of bonds: corporate, municipal and government.
Companies trying to raise funds for projects such as construction of new facilities or launching new product lines typically issue corporate bonds. The interest of these bonds is taxable. As a result these bonds tend to pay higher and better investment options for retirement that government or municipal bonds.
I have said before and will continue to say that there are no sure things when it comes to investing. While many bonds tend to be safer than some of the other investments on the surface there are significant risks involved when investing in bonds that would be remiss to ignore.
When you find the risks of market ups and downs when investing in stocks, mutual funds, options and the risk is that theirs may lose value. When it comes to bond risks include: default, changes in interest rates and inflation. The risks for some are much weightier that the benefits of a slow and 's teady investment.
You should consider carefully whether or not the investment bond is a good idea of your retirement needs along their nerves. We did not born with all the nerves of steal, for this reason, is probably a good idea to carefully decide whether or not you're accustomed to the risk that bonds make to its investment image.
I always recommend that you take the time to discuss their plans and goals with a financial planner before taking the step and make important financial decisions whether your retirement or your child 's college fund. These all affect their future and security that you can give your family when the time comes.
A good financial adviser can help you weigh the pros and cons of investing in bonds and will help you decide whether or not the potential gains of these bonds is worth the risks that are involved in the process. This is not the case for everyone. I tend to be more prudent for most investors and think well before investing in things that do not consider a carefully calculated risk.
Only you can decide whether or not you're comfortable with the idea of investing in bonds when it comes to their retirement financial hopes and dreams. I hope to discuss this with our consultant and consider carefully the consequences of this decision.
The bonds are not the typical high-risk investment of high-performance, but it is very likely to make a profit for you. If you're not in a position to straight to pension funds is a slow and steady way to build a decent retirement for you over time. If you are in the last minute is an investment strategy that could be more than a little too timid for their specific needs. There are other more investment strategies that will be discussed elsewhere.
There are essentially three types of bonds: corporate, municipal and government.
Companies trying to raise funds for projects such as construction of new facilities or launching new product lines typically issue corporate bonds. The interest of these bonds is taxable. As a result these bonds tend to pay higher and better investment options for retirement that government or municipal bonds.
I have said before and will continue to say that there are no sure things when it comes to investing. While many bonds tend to be safer than some of the other investments on the surface there are significant risks involved when investing in bonds that would be remiss to ignore.
When you find the risks of market ups and downs when investing in stocks, mutual funds, options and the risk is that theirs may lose value. When it comes to bond risks include: default, changes in interest rates and inflation. The risks for some are much weightier that the benefits of a slow and 's teady investment.
You should consider carefully whether or not the investment bond is a good idea of your retirement needs along their nerves. We did not born with all the nerves of steal, for this reason, is probably a good idea to carefully decide whether or not you're accustomed to the risk that bonds make to its investment image.
I always recommend that you take the time to discuss their plans and goals with a financial planner before taking the step and make important financial decisions whether your retirement or your child 's college fund. These all affect their future and security that you can give your family when the time comes.
A good financial adviser can help you weigh the pros and cons of investing in bonds and will help you decide whether or not the potential gains of these bonds is worth the risks that are involved in the process. This is not the case for everyone. I tend to be more prudent for most investors and think well before investing in things that do not consider a carefully calculated risk.
Only you can decide whether or not you're comfortable with the idea of investing in bonds when it comes to their retirement financial hopes and dreams. I hope to discuss this with our consultant and consider carefully the consequences of this decision.
Wednesday, October 15, 2008
Get purge of Common Investment Pitfalls
Investors tend to make more mistakes investment in Bull period, compared to normal times. It is certain that most investors make money when markets are rising, but when the Bull Run gets most inexperienced investors will all stocks will not be bought. So following points will make you understand how to deal with those mistakes and make your defensive portfolio and reap good returns.
Proper planning and goal in mind In general it appears that investment is not being done with proper planning and a goal in mind. Instead of investments are made based on factors such as year-end tax savings, a broker / friend or tip, hot news, surplus money in a given time and so forth. Due to these factors, of course, the investment will be made regardless of the true value of the investment vehicles. For example, investors may end up investing in expensive stocks pr finish in investing in the stock market is on its way to the correction and many more. Therefore, the investment decision should be backed up with proper planning and guidance to maintain its objective in mind.
Choose carefully stocks It is true that you have decided their investment horizons and maintains its clear objective, but it is also important that you carefully choose their populations and do a proper analysis before investing. Basically, investors choose hot stocks of the moment, but these stocks may not be beneficial to long-term plans. On another note of their populations need not be at the top of the charts, but they have shown good earnings in all stages of the exercise.
Avoid too many stocks in his portfolio This is very common question among many investors, having read somewhere around the floor and then called Diversification become collectors and add to the populations there portfolios. But investors should remember also that the addition of many stocks in the portfolio would be created to manage the complexity and overheads also becomes track for business.
So how should be the ideal portfolio? An ideal portfolio should have at least 5 to 8 populations of at least 3 different sectors. But there is no rule to take this kind of portfolio if they can manage and you have even more the number of stocks in its portfolio. At the same time, it will be useful to reduce the risk if it maintains its balanced portfolio. Balanced portfolio consists of some large cap stocks and mid cap stocks and some may even be some small cap stocks. If possible you can even add some mutual funds. Once again in mutual funds that may have related to equity funds, balanced funds and debt.
To comply with their plans Most of the time it has been observed that many investors change their portfolio especially in Bull Run, adding some hot stock portfolio there. The money was finding its way through constant investment in a project so suddenly changes direction toward some hot stocks thus exposing the portfolio to risk that was on track for a good return. If possible, this should be avoided.
Take into consideration tax (mutual funds) This is again one of the common problems that often occur with most investors, while selling units of mutual funds. While the sale of mutual funds units investor should consider tax implications. If investors do some analysis then he could have saved his pay taxes only postponing its plan to sell only one month. A little planning here can help you do something extra.
Lastly Steps to fine-tuning of its portfolio To possess adequate knowledge to gain stock market, mutual funds, etc. and make yourself asset allocation Step 1 to help determine how much of your money should be in stocks, mutual funds and how much in back into mutual funds in the amount of diversified funds and how much debt and balanced funds. Once you decide financial instruments then decide your time horizon. The money will be invested in the stock market should be more than 5 years to get good yields, while the shorter-term investment should go for mutual funds and balanced funds and debt.
Proper planning and goal in mind In general it appears that investment is not being done with proper planning and a goal in mind. Instead of investments are made based on factors such as year-end tax savings, a broker / friend or tip, hot news, surplus money in a given time and so forth. Due to these factors, of course, the investment will be made regardless of the true value of the investment vehicles. For example, investors may end up investing in expensive stocks pr finish in investing in the stock market is on its way to the correction and many more. Therefore, the investment decision should be backed up with proper planning and guidance to maintain its objective in mind.
Choose carefully stocks It is true that you have decided their investment horizons and maintains its clear objective, but it is also important that you carefully choose their populations and do a proper analysis before investing. Basically, investors choose hot stocks of the moment, but these stocks may not be beneficial to long-term plans. On another note of their populations need not be at the top of the charts, but they have shown good earnings in all stages of the exercise.
Avoid too many stocks in his portfolio This is very common question among many investors, having read somewhere around the floor and then called Diversification become collectors and add to the populations there portfolios. But investors should remember also that the addition of many stocks in the portfolio would be created to manage the complexity and overheads also becomes track for business.
So how should be the ideal portfolio? An ideal portfolio should have at least 5 to 8 populations of at least 3 different sectors. But there is no rule to take this kind of portfolio if they can manage and you have even more the number of stocks in its portfolio. At the same time, it will be useful to reduce the risk if it maintains its balanced portfolio. Balanced portfolio consists of some large cap stocks and mid cap stocks and some may even be some small cap stocks. If possible you can even add some mutual funds. Once again in mutual funds that may have related to equity funds, balanced funds and debt.
To comply with their plans Most of the time it has been observed that many investors change their portfolio especially in Bull Run, adding some hot stock portfolio there. The money was finding its way through constant investment in a project so suddenly changes direction toward some hot stocks thus exposing the portfolio to risk that was on track for a good return. If possible, this should be avoided.
Take into consideration tax (mutual funds) This is again one of the common problems that often occur with most investors, while selling units of mutual funds. While the sale of mutual funds units investor should consider tax implications. If investors do some analysis then he could have saved his pay taxes only postponing its plan to sell only one month. A little planning here can help you do something extra.
Lastly Steps to fine-tuning of its portfolio To possess adequate knowledge to gain stock market, mutual funds, etc. and make yourself asset allocation Step 1 to help determine how much of your money should be in stocks, mutual funds and how much in back into mutual funds in the amount of diversified funds and how much debt and balanced funds. Once you decide financial instruments then decide your time horizon. The money will be invested in the stock market should be more than 5 years to get good yields, while the shorter-term investment should go for mutual funds and balanced funds and debt.
Wednesday, October 8, 2008
Retirement - Investing In Property
While many fortunes made and lost in the real estate business, many people overlook the value of investment in real estate in terms of planning for retirement. There are many ways that can leave real estate to build a good little nest egg for their retirement and the sooner we begin the process, the better.
While there are all kinds of stocks and mutual funds that confuse even the brightest among us, real estate business is a fairly simple to enter. The problem is that many people feel that it is too risky.
The truth is that there are many different types of investment in real estate to bring all the different risks for buyers. One thing is certain and that is with due care and attention properties tend to have value over time instead of losing value.
If you buy properties today and keep them properly, not only can reap years of rental income while paying the mortgage on these properties, but you can also find your house and retirement pay today 's for that price instead of prices tomorrow.
When it comes to real estate is always good for the arm with the knowledge before taking any action and you should carefully discuss all plans for their financial future with his trusted financial planner or adviser.
His job is to give guidance to make purchases and plans that will affect its financial situation of security and stability. They can also help with tax matters, cost analysis, estimated inflation and the average increase in property values of an area.
As I said before, there are always risks when it comes to any type of investment. The same is true of investment in real estate. Things can go wrong. Sometimes you will find properties of lemon, which is why you need to have a complete and thorough inspection before buying property.
You should also make sure that you are aware of state and local laws as they apply to landlords. For this reason, it is a good idea to consult with a lawyer who specializes in this sort of financial investment, in addition to its financial advisor.
Rental properties are not the only way to build a portfolio of real estate investments. There are all kinds of property investment opportunities for those willing to take the risk. When it comes to investing assets, the biggest risks often the largest network of potential rewards.
The thing to remember is that you are gambling with their financial future. I am inclined to stick with rental properties, since they are a fairly safe bet, and indeed pay for themselves over the years, while building a nest egg good for my future.
It is not the eternally fascinating investment opportunity that presents property flipping. When flipping a property that you purchase a property below market value-preferably one that required minor cosmetic repairs. Make repairs. Then sell the house for a substantial profit.
This is a risky adventure for those who are beginners in the field and many investors have lost a lot of money doing this. Successful investors, however, can net profit important in a very short time if they have the knowledge and skills to do the job themselves and time things perfectly.
There are even more opportunities to invest the assets that provide even greater risk because they are highly speculative known as pre-construction investment. This is the kind of investment that creates millionaires. On the other side that has sent many into bankruptcy along the road and rolling so very carefully before getting involved in this type of investment in real estate and be very careful to not invest more than they can afford losing.
As you can see there are many opportunities in real estate to create an outstanding financial retirement plan for you and your family. The only decision that you need to make is whether or not this kind of investment is a good fit for your comfort zone.
While there are all kinds of stocks and mutual funds that confuse even the brightest among us, real estate business is a fairly simple to enter. The problem is that many people feel that it is too risky.
The truth is that there are many different types of investment in real estate to bring all the different risks for buyers. One thing is certain and that is with due care and attention properties tend to have value over time instead of losing value.
If you buy properties today and keep them properly, not only can reap years of rental income while paying the mortgage on these properties, but you can also find your house and retirement pay today 's for that price instead of prices tomorrow.
When it comes to real estate is always good for the arm with the knowledge before taking any action and you should carefully discuss all plans for their financial future with his trusted financial planner or adviser.
His job is to give guidance to make purchases and plans that will affect its financial situation of security and stability. They can also help with tax matters, cost analysis, estimated inflation and the average increase in property values of an area.
As I said before, there are always risks when it comes to any type of investment. The same is true of investment in real estate. Things can go wrong. Sometimes you will find properties of lemon, which is why you need to have a complete and thorough inspection before buying property.
You should also make sure that you are aware of state and local laws as they apply to landlords. For this reason, it is a good idea to consult with a lawyer who specializes in this sort of financial investment, in addition to its financial advisor.
Rental properties are not the only way to build a portfolio of real estate investments. There are all kinds of property investment opportunities for those willing to take the risk. When it comes to investing assets, the biggest risks often the largest network of potential rewards.
The thing to remember is that you are gambling with their financial future. I am inclined to stick with rental properties, since they are a fairly safe bet, and indeed pay for themselves over the years, while building a nest egg good for my future.
It is not the eternally fascinating investment opportunity that presents property flipping. When flipping a property that you purchase a property below market value-preferably one that required minor cosmetic repairs. Make repairs. Then sell the house for a substantial profit.
This is a risky adventure for those who are beginners in the field and many investors have lost a lot of money doing this. Successful investors, however, can net profit important in a very short time if they have the knowledge and skills to do the job themselves and time things perfectly.
There are even more opportunities to invest the assets that provide even greater risk because they are highly speculative known as pre-construction investment. This is the kind of investment that creates millionaires. On the other side that has sent many into bankruptcy along the road and rolling so very carefully before getting involved in this type of investment in real estate and be very careful to not invest more than they can afford losing.
As you can see there are many opportunities in real estate to create an outstanding financial retirement plan for you and your family. The only decision that you need to make is whether or not this kind of investment is a good fit for your comfort zone.
Wednesday, October 1, 2008
Retirement - Investment Diversity Is The Key
With regard to financial planning for their retirement actually diversity is the key to turning an important benefit. You do not want all their eggs in one basket.
For this reason, is an excellent idea to have a number of fingers in a series of pastels, financially speaking of course, at any given time. There would be a lot of interpretations, unfortunately, what it means to really diversify its investment portfolio.
There are those who believe that the diversification of its portfolio only has to choose stocks in various sectors rather than focusing on one. This was a big problem when the dot com boom was Dot Bust. Many people learned valuable lessons during this time and have taken a bit of heart.
However, there is nothing to say that never again experience a major stock market crash. If this were to happen and all their retirement hopes, dreams, and the funds was based on the stock market for salvation and that it would be deep in shark-infested waters financially as a result.
I do not want to imply that a stock market crash is probable or imminent by any means. The closest we have come as a nation to a stock market crash in recent history was immediately after 9-11. The good news is that the safeguards were put in place years ago to prevent an accident of the scale that we all know as "the accident".
This means that, although it may take strong blows, it is likely that the market will recover if they are willing and able to wait it out. However, if you're putting in a position to rely solely on stocks that you need to take a serious look at your overall investment plan and see where changes can be made.
It goes without saying that any decision regarding their financial future should be done without first talking to your financial advisor. My purpose here is to raise questions and ideas that you may wish to consider or at least talk to your adviser.
My personal preference is to have a little money tied up in mutual funds and other funds linked to real estate, which may provide some form of income continued month after month. I'm not much of a player and yet have chosen a path of low risk for retirement funding and financing.
There are some who are much more adventurous than I when it comes to investing in their financial future. For those of you who are willing to take risks that there are values as an investment to provide a ride wildly speculative.
Values are very risky for investors, especially those who are novices and even some seasoned veterans of investment tend to shun such investment. If you do invest in securities, I strongly urge that not all risk of investing in them.
Mutual funds provide a little safer bet when it comes to your financial future. Once again there are no guarantees, but these are much safer bet than securities.
The problem with mutual funds for many is that there are so many to choose which is still a difficult decision for beginning investors to do. These decisions are the reason that a good financial advisor is so terribly important to make a map of their financial destiny.
All in one of the funds are essentially collections of mutual funds. These provide a safe bet for those who wish to find an easy possibility that the investment is fairly safe (if not terribly conservative) to place their money and see it grow slowly over time. All in one funds tend to be less aggressive over time.
This means that as they age, become more conservative in placing their money in an effort to better protect their money while continuing to grow.
By placing a bit of your money in many different places, you will see a much larger safety net when it comes to protecting their profits. Discuss your plans with your financial advisor and any concerns you may have. It is likely that can help clarify any questions or concerns you may have.
For this reason, is an excellent idea to have a number of fingers in a series of pastels, financially speaking of course, at any given time. There would be a lot of interpretations, unfortunately, what it means to really diversify its investment portfolio.
There are those who believe that the diversification of its portfolio only has to choose stocks in various sectors rather than focusing on one. This was a big problem when the dot com boom was Dot Bust. Many people learned valuable lessons during this time and have taken a bit of heart.
However, there is nothing to say that never again experience a major stock market crash. If this were to happen and all their retirement hopes, dreams, and the funds was based on the stock market for salvation and that it would be deep in shark-infested waters financially as a result.
I do not want to imply that a stock market crash is probable or imminent by any means. The closest we have come as a nation to a stock market crash in recent history was immediately after 9-11. The good news is that the safeguards were put in place years ago to prevent an accident of the scale that we all know as "the accident".
This means that, although it may take strong blows, it is likely that the market will recover if they are willing and able to wait it out. However, if you're putting in a position to rely solely on stocks that you need to take a serious look at your overall investment plan and see where changes can be made.
It goes without saying that any decision regarding their financial future should be done without first talking to your financial advisor. My purpose here is to raise questions and ideas that you may wish to consider or at least talk to your adviser.
My personal preference is to have a little money tied up in mutual funds and other funds linked to real estate, which may provide some form of income continued month after month. I'm not much of a player and yet have chosen a path of low risk for retirement funding and financing.
There are some who are much more adventurous than I when it comes to investing in their financial future. For those of you who are willing to take risks that there are values as an investment to provide a ride wildly speculative.
Values are very risky for investors, especially those who are novices and even some seasoned veterans of investment tend to shun such investment. If you do invest in securities, I strongly urge that not all risk of investing in them.
Mutual funds provide a little safer bet when it comes to your financial future. Once again there are no guarantees, but these are much safer bet than securities.
The problem with mutual funds for many is that there are so many to choose which is still a difficult decision for beginning investors to do. These decisions are the reason that a good financial advisor is so terribly important to make a map of their financial destiny.
All in one of the funds are essentially collections of mutual funds. These provide a safe bet for those who wish to find an easy possibility that the investment is fairly safe (if not terribly conservative) to place their money and see it grow slowly over time. All in one funds tend to be less aggressive over time.
This means that as they age, become more conservative in placing their money in an effort to better protect their money while continuing to grow.
By placing a bit of your money in many different places, you will see a much larger safety net when it comes to protecting their profits. Discuss your plans with your financial advisor and any concerns you may have. It is likely that can help clarify any questions or concerns you may have.
Wednesday, September 24, 2008
Simple Strategies For The New Investor
Ideally, investors trying to buy a reserve when the price has reached a level of support (at the level where the price is as low as it will go) and sell the shares when it hits a resistance level ( a level where the price is so high, since it go). This is easier said than done. Most investors end up losing by a continuous increase in hopes of a population to plummet first, or sell early so as to underestimate how high the price will go. In this article, we will focus on the two most popular strategies you can use to invest without having to worry about market timing.
Dollar cost average (DCA) is an investment technique designed to reduce exposure to risk associated with making a single large purchase. According to this technique, the shares of stocks are bought in a specific amount to a regular (often monthly), regardless of their current performance. The theory is that this will lead to greater yields in general, since fewer shares are bought when the cost is high, while largest number of shares were purchased while the cost is low.
An example of DCA would be as follows: If I want to buy 1200 shares of IBM stock using DCA, then I might decide to buy 400 shares of IBM per month over the next three months. Hypothetically, for a month, the price of IBM may be $ 105 per share, and then could drop to 95 U.S. dollars per share for two months, then increase to $ 100 for three months. If I bought all the shares during 1200 a month, I would like to have cost $ 105 per share. But for the dissemination of purchase for a period of three months, I could buy IBM at an average price of $ 100 per share.
The main drawback of using DCA is that you can not maximize its overall performance. If there is an indication that a particular stock is currently undervalued and could shoot up in price, which actually make less money than if using DCA had bought all shares in the beginning before prices skyrocketed. Therefore, it is not always a winning strategy to spread their purchases over a period of time.
Average value, also known as the average value of the dollar (VAD), is a technique of adding an investment portfolio to provide a higher return on similar methods such as dollar cost averaging random and investment. With the method, investors contribute to their portfolios so that the balance of portfolio rises by a fixed amount, regardless of market fluctuations. As a result, during periods of declining market, the investor makes more money, while in periods of market rises, the investor contributes less.
Here is an example of VAD: I want to invest in Yahoo using VAD. For the sake of argument, we will say that Yahoo is currently $ 10 per share. I determine that the value of that amount going to invest over 1 year will increase on average $ 1000 each quarter and make additional investments. If I use VAD, investing $ 1,000 to start.
If at the end of the first quarter, the share price has risen to $ 15 per share, meaning that the value of my investment is now $ 1500, meaning that you only need to invest $ 500 at the beginning of the second quarter in order to bring the total amount of my investment for the first and second quarter to $ 2000. Therefore, I am investing less as increases in stock price.
Average value of the dollar usually performs better than the average cost because the average value of results in less money is invested as the stock price rises, while the average cost of continuing to invest the same amount of dollars, irrespective of the share price. However, none of these strategies are necessarily complete the test. Make sure you know something about the company will invest in you before proceeding.
Dollar cost average (DCA) is an investment technique designed to reduce exposure to risk associated with making a single large purchase. According to this technique, the shares of stocks are bought in a specific amount to a regular (often monthly), regardless of their current performance. The theory is that this will lead to greater yields in general, since fewer shares are bought when the cost is high, while largest number of shares were purchased while the cost is low.
An example of DCA would be as follows: If I want to buy 1200 shares of IBM stock using DCA, then I might decide to buy 400 shares of IBM per month over the next three months. Hypothetically, for a month, the price of IBM may be $ 105 per share, and then could drop to 95 U.S. dollars per share for two months, then increase to $ 100 for three months. If I bought all the shares during 1200 a month, I would like to have cost $ 105 per share. But for the dissemination of purchase for a period of three months, I could buy IBM at an average price of $ 100 per share.
The main drawback of using DCA is that you can not maximize its overall performance. If there is an indication that a particular stock is currently undervalued and could shoot up in price, which actually make less money than if using DCA had bought all shares in the beginning before prices skyrocketed. Therefore, it is not always a winning strategy to spread their purchases over a period of time.
Average value, also known as the average value of the dollar (VAD), is a technique of adding an investment portfolio to provide a higher return on similar methods such as dollar cost averaging random and investment. With the method, investors contribute to their portfolios so that the balance of portfolio rises by a fixed amount, regardless of market fluctuations. As a result, during periods of declining market, the investor makes more money, while in periods of market rises, the investor contributes less.
Here is an example of VAD: I want to invest in Yahoo using VAD. For the sake of argument, we will say that Yahoo is currently $ 10 per share. I determine that the value of that amount going to invest over 1 year will increase on average $ 1000 each quarter and make additional investments. If I use VAD, investing $ 1,000 to start.
If at the end of the first quarter, the share price has risen to $ 15 per share, meaning that the value of my investment is now $ 1500, meaning that you only need to invest $ 500 at the beginning of the second quarter in order to bring the total amount of my investment for the first and second quarter to $ 2000. Therefore, I am investing less as increases in stock price.
Average value of the dollar usually performs better than the average cost because the average value of results in less money is invested as the stock price rises, while the average cost of continuing to invest the same amount of dollars, irrespective of the share price. However, none of these strategies are necessarily complete the test. Make sure you know something about the company will invest in you before proceeding.
Wednesday, September 17, 2008
Invest in What You really Know
As investors, we believe it is possible to estimate a range of intrinsic value for a company based on its financial statements and filings. This can not be done, however, if you do not understand how a company makes money. For example, if you do not know anything about telecommunications equipment, you should not invest in Lucent Technologies. Why? Unless you understand the company's products, market, competitive strengths and weaknesses, you will not be able to project future cash flows.
In his lectures and writings, the famous investor Warren Buffett often discusses the concept of a "circle of competence." This circle of competition consists of all the companies with which the investor is familiar and thoroughly understood. An investor who has spent the last ten years as an inspector at a supermarket would have an edge when analyzing the financial statements of a chain of grocery stores; he or she will be able to identify the strengths and weaknesses of the company, evaluate the climate of competitive industry, and compare the performance of a prospective investment with an excellent grocer.
The size of an investor's circle competition is not as important as clearly defined borders. If you're unfamiliar with the insurance industry, not even attempt to evaluate the performance of a property and casualty. Similarly, if you do not understand the Internet, did not bother ordering the annual report of an Internet population. Depart from the circle of competition leads to potential investors-in the realm of speculation.
The discovery of investment ideas
How to find companies that you can understand? Take a trip to your local commercial and scouts from the shops to see what is popular. Pay attention to your children wherever you take for their return to school shopping. Peter Lynch, one of the most successful money managers in history, has some of his best investment ideas from listening to his wife and children after returning from errands. In fact, Lynch bought shares in Hanes after his wife brought home the newly introduced L'eggs discovered while in line buying at the supermarket, the investment made millions.
Another way to get ideas investment is to go through your pantry, closets, laundry, garage and find the products they use regularly. Most of the labels contain information about the product's manufacturer. You may be surprised by what you find; what Tide, Pampers, Always maxi pads, Pantene Pro V, Charmin Toilette paper, Bounty paper towels, folders Coffee, Crest toothpaste, Pringles potato chips, Downy fabric softener, Oil of Olay, Bounce, Cascade, Cover Girl, Fixodent, Mr. Clean, PERT Plus, Pepto Bismol, Old Spice, Noxema, Millstone Coffee, Max Factor, Febreze, Giorgio Beverly Hills, head and shoulders, herbal essences , Gain, Ivory, Luvs, Joy, scope, Sunny Delight, Tampax, Zest, and Vidal Sasoon have in common? All of them are made by Procter and Gamble. Sara Lee is another company with well-known brand names including Hanes underwear, Hillshire Farm, Playtex, Sara Lee food, sportswear Champion, L'eggs, Jimmy Dean, ballpark Hotdogs, Kiwi Shoe Care, and Wonderbra.
Price still matters
Finding companies that are easy to understand is just the beginning. The circle of competence test should be merely a starting point to generate a list of investment opportunities on the basis of an investor individual strengths and viewpoints. A company must show an excellent economy, an attractive price and shareholder-friendly management. When discovered, this holy grail of investment insurance to produce stellar returns for the investor's pocket.
In his lectures and writings, the famous investor Warren Buffett often discusses the concept of a "circle of competence." This circle of competition consists of all the companies with which the investor is familiar and thoroughly understood. An investor who has spent the last ten years as an inspector at a supermarket would have an edge when analyzing the financial statements of a chain of grocery stores; he or she will be able to identify the strengths and weaknesses of the company, evaluate the climate of competitive industry, and compare the performance of a prospective investment with an excellent grocer.
The size of an investor's circle competition is not as important as clearly defined borders. If you're unfamiliar with the insurance industry, not even attempt to evaluate the performance of a property and casualty. Similarly, if you do not understand the Internet, did not bother ordering the annual report of an Internet population. Depart from the circle of competition leads to potential investors-in the realm of speculation.
The discovery of investment ideas
How to find companies that you can understand? Take a trip to your local commercial and scouts from the shops to see what is popular. Pay attention to your children wherever you take for their return to school shopping. Peter Lynch, one of the most successful money managers in history, has some of his best investment ideas from listening to his wife and children after returning from errands. In fact, Lynch bought shares in Hanes after his wife brought home the newly introduced L'eggs discovered while in line buying at the supermarket, the investment made millions.
Another way to get ideas investment is to go through your pantry, closets, laundry, garage and find the products they use regularly. Most of the labels contain information about the product's manufacturer. You may be surprised by what you find; what Tide, Pampers, Always maxi pads, Pantene Pro V, Charmin Toilette paper, Bounty paper towels, folders Coffee, Crest toothpaste, Pringles potato chips, Downy fabric softener, Oil of Olay, Bounce, Cascade, Cover Girl, Fixodent, Mr. Clean, PERT Plus, Pepto Bismol, Old Spice, Noxema, Millstone Coffee, Max Factor, Febreze, Giorgio Beverly Hills, head and shoulders, herbal essences , Gain, Ivory, Luvs, Joy, scope, Sunny Delight, Tampax, Zest, and Vidal Sasoon have in common? All of them are made by Procter and Gamble. Sara Lee is another company with well-known brand names including Hanes underwear, Hillshire Farm, Playtex, Sara Lee food, sportswear Champion, L'eggs, Jimmy Dean, ballpark Hotdogs, Kiwi Shoe Care, and Wonderbra.
Price still matters
Finding companies that are easy to understand is just the beginning. The circle of competence test should be merely a starting point to generate a list of investment opportunities on the basis of an investor individual strengths and viewpoints. A company must show an excellent economy, an attractive price and shareholder-friendly management. When discovered, this holy grail of investment insurance to produce stellar returns for the investor's pocket.
Wednesday, September 10, 2008
Making Money in Bad Companies
Sometimes you can make more money by purchasing the shares less attractive in an industry where cree que el sector is due to a change. While it is counterintuitive, a little simple mathematics can show why it makes perfect sense and can leave the astute analyst with much fat pocketbook. Such operations are for investors who have already built their entire portfolio and are financially viable in the foot, but should not represent a substantial portion of their assets and are best left to those who have a good understanding of economics and risks of the situation.
An example in the petroleum industry
Imagine being at the end of 1990 and of crude oil is $ 10 per barrel. You have some spare parts capital with which to speculate. It is his belief that oil soon skyrocketed to 30 dollars per barrel and that he would like to find a way to exploit their hunch. Usually, as a long-term investor that would deal with the company to better suit the economy and its capital in stocks, parking them for decades as they collected and reinvested dividends. However, to recall a technique taught in Security Analysis and really seek out the least profitable oil companies and start buying shares.
Why do this? Imagine you're looking at two oil companies fiction:
An example in the petroleum industry
Imagine being at the end of 1990 and of crude oil is $ 10 per barrel. You have some spare parts capital with which to speculate. It is his belief that oil soon skyrocketed to 30 dollars per barrel and that he would like to find a way to exploit their hunch. Usually, as a long-term investor that would deal with the company to better suit the economy and its capital in stocks, parking them for decades as they collected and reinvested dividends. However, to recall a technique taught in Security Analysis and really seek out the least profitable oil companies and start buying shares.
Why do this? Imagine you're looking at two oil companies fiction:
- Company A is big business. Oil is currently $ 10 per barrel, and its exploration and other costs are $ 6 per barrel, leaving a $ 4 per barrel profit.
- Company B is a terrible business in comparison. It has exploration and other costs of $ 9 per barrel, leaving only $ 1 per barrel in profits at the current price of 10 dollars per barrel crude.
Now, imagine that skyrockets crude to 30 dollars per barrel. Here are the numbers of each company:
- Company A earns $ 24 per barrel in profits. ($ 30 per barrel oil price - $ 6 = $ 24 in expenses profit).
- Company B earns $ 21 per barrel in profits ($ 30 per barrel oil price - costs $ 9 = $ 21).
Even if Company A makes more money in an absolute sense, their benefit only an increase of 600%, from $ 4 per barrel to 24 dollars per barrel compared with Company B, which increased its profits 2, 100%. These differences are likely to be reflected in the share price which means that although the first company is a business better than the second is a better balance.
More info
Normally, these operations are most successful in industries that depend on the prices of their underlying profitability, as producers of copper, gold mines, oil companies, etc. wild fluctuations in commodities may give rise to huge fluctuations in income of the company, which makes them good candidates. Of course, unless you are a professional, should not participate in these types of transactions, instead focusing on building long-term wealth through value-based, intelligent, discipline and investments that focus on harness to maximize profits at lower risk.
Wednesday, September 3, 2008
7 Signs of a Shareholder Friendly Management
Good corporate governance is important for its portfolio. When you are in business with people who are interested in ensuring that you, the shareholder, get a fair shake, is likely to have better results. Here are seven things you can find an owner-oriented company.
1. Clearly articulated with the dividend policy rationally justifiable
One of the most important jobs of management has been allocating shareholder capital. How excess profits are handled is extremely important, if reinvested in existing operations, used to acquire a competitor, expand into other industries, repurchase shares or increase dividends in cash to owners, the decision will have an impact substantial wealth of the owners. As Warren Buffett aptly illustrated in one of his letters to shareholders, however, this is not something that comes naturally to most executives. "The lack of ability that many CEOs have in the allocation of capital is not a small matter: After ten years in the job, a CEO whose company's annual revenue reserves equal to 10% of net assets have been responsible for deployment of more than 60% of the entire capital at work in the company. " When management articulates a clear and justified the dividend policy, shareholders are better able to make them responsible and judge performance. It also tempers the need to pursue overpriced acquisitions. An excellent example is the U.S. Bank, the sixth largest financial institution in the world. According to the company's annual report 2005, "The Company has focused on restoring 80 percent of profits to our shareholders through a combination of dividends and share repurchases. Consistent with the goal, the company returned to 90 percent of revenues in 2005. "
2. Management stock ownership guidelines
Everything else being equal, you want your capital managed by someone who has "skin in the game", so to speak. Shareholder friendly companies often require their managers and executives to own shares in the company worth several times their base salary. This ensures that those who are thinking primarily as owners, not employees.
3. Strong managers who are loyal to shareholders, not management
The Governing Council should know their main job - to protect the interests of shareholders, not management. Throughout the financial history, it seems that most of corporate scandals have occurred when a board was too comfortable with the executive team. This phenomenon is understandable, when working with people you like and respect, it is certainly easier to take friendship club atmosphere rather than a fight club antagonistic. How can we know whether the directors are on your side? Look for some key signs:
4. The equity and voting rights Aligned
In most cases, does not bode well for the management of possessing 2% of the population, but control 80% of the votes. These agreements can lead to unbalanced class of shareholder that the abuse was alleged in Adelphia.
5. Limited related-party transactions
Does the company leases all its facilities of a real estate company owned and controlled by the family of the CEO? Are all the napkins in his chain of pizza bought the granddaughter of the founder? Despite the fact that some transactions with related parties can actually be good for business, be aware of situations that could give rise to conflicts of interest. Taking our last example: shareholders will get the lowest possible price in its infancy, or the CEO is going to feel like helping out the granddaughter of the founder of paying more than they know it could get elsewhere?
6. Reasonable and restricted stock options and executive compensation
If the CEO is paid $ 100 million, may be perfectly justified if the company is among the top performers during his tenure. If companies has been reduced, the talent is jumping ship, shareholders are revolting, and a huge pay package has been announced, there may be very real problems of corporate governance.
7. Open and honest communication
As the owner of the company, you are entitled to know the challenges and opportunities facing your company. If management is reluctant to share information, may indicate a tendency to regard shareholders as a necessary evil rather than the true owners of the company. In most cases, your portfolio will be better if you steer clear.
1. Clearly articulated with the dividend policy rationally justifiable
One of the most important jobs of management has been allocating shareholder capital. How excess profits are handled is extremely important, if reinvested in existing operations, used to acquire a competitor, expand into other industries, repurchase shares or increase dividends in cash to owners, the decision will have an impact substantial wealth of the owners. As Warren Buffett aptly illustrated in one of his letters to shareholders, however, this is not something that comes naturally to most executives. "The lack of ability that many CEOs have in the allocation of capital is not a small matter: After ten years in the job, a CEO whose company's annual revenue reserves equal to 10% of net assets have been responsible for deployment of more than 60% of the entire capital at work in the company. " When management articulates a clear and justified the dividend policy, shareholders are better able to make them responsible and judge performance. It also tempers the need to pursue overpriced acquisitions. An excellent example is the U.S. Bank, the sixth largest financial institution in the world. According to the company's annual report 2005, "The Company has focused on restoring 80 percent of profits to our shareholders through a combination of dividends and share repurchases. Consistent with the goal, the company returned to 90 percent of revenues in 2005. "
2. Management stock ownership guidelines
Everything else being equal, you want your capital managed by someone who has "skin in the game", so to speak. Shareholder friendly companies often require their managers and executives to own shares in the company worth several times their base salary. This ensures that those who are thinking primarily as owners, not employees.
3. Strong managers who are loyal to shareholders, not management
The Governing Council should know their main job - to protect the interests of shareholders, not management. Throughout the financial history, it seems that most of corporate scandals have occurred when a board was too comfortable with the executive team. This phenomenon is understandable, when working with people you like and respect, it is certainly easier to take friendship club atmosphere rather than a fight club antagonistic. How can we know whether the directors are on your side? Look for some key signs:
- Directors hold separate meetings without management present.
- Board compensation is reasonable and not excessive.
4. The equity and voting rights Aligned
In most cases, does not bode well for the management of possessing 2% of the population, but control 80% of the votes. These agreements can lead to unbalanced class of shareholder that the abuse was alleged in Adelphia.
5. Limited related-party transactions
Does the company leases all its facilities of a real estate company owned and controlled by the family of the CEO? Are all the napkins in his chain of pizza bought the granddaughter of the founder? Despite the fact that some transactions with related parties can actually be good for business, be aware of situations that could give rise to conflicts of interest. Taking our last example: shareholders will get the lowest possible price in its infancy, or the CEO is going to feel like helping out the granddaughter of the founder of paying more than they know it could get elsewhere?
6. Reasonable and restricted stock options and executive compensation
If the CEO is paid $ 100 million, may be perfectly justified if the company is among the top performers during his tenure. If companies has been reduced, the talent is jumping ship, shareholders are revolting, and a huge pay package has been announced, there may be very real problems of corporate governance.
7. Open and honest communication
As the owner of the company, you are entitled to know the challenges and opportunities facing your company. If management is reluctant to share information, may indicate a tendency to regard shareholders as a necessary evil rather than the true owners of the company. In most cases, your portfolio will be better if you steer clear.
Wednesday, August 27, 2008
"Kiss" - Keep It Simple, Stupid!-One of Warren Buffett's Keys to Success
Two of the biggest investors in history, Peter Lynch and Warren Buffett, are recognized by a trick that helped them develop investment records from 20% to 30% compounded over long periods of time. Buffett summed it up in the acronym "Kiss," which means "Keep it simple, stupid!" When you really understand what it means, can have major ramifications for his wallet and help give meaning to a turbulent market.
Paragraph one of the trials
The proof that these two men is applied is more or less the same. According to sources, Peter Lynch used to start an egg timer when the phone with financial analysts and operators to force them to explain the basic premise of an idea to invest in less than a minute. Buffett recommend that you write a brief paragraph saying something along the lines of, "I'm buying $ 10000 shares of the Company XYZ at $ 25 per share, because I think (insert here the reason as the profit will grow twice as quicker than the current price-to - revenue ratio, assets are hidden in the balance sheet, there was a management change for the better, the valuation is too low, etc.) then control the situation, always aware of their basic thesis. The practical result is meat or substance of his argument of the matter is separated from the water by a nonsense. Too often, stockbrokers and financial journalists spew tens of facts that have regurgitated for 10k or an annual report. Therefore, many facts obscure the really important figures such as sales growth, profit margins, anticipated capital expenditures, expected depreciation, and return on equity. Investors instead become bogged down in the reading of a $ 12 million transactions in a company generating $ 20 billion in sales. In a vast majority of cases, such information is not particularly relevant or necessary.
Avoid multiple points
Another big advantage of "Kiss" that is basic factor in probability theory in their decisions. What you do not have: a population that has a 65% change to double over the next five years or a population that has the potential to quadruple if eight different events taking place all (perhaps a business license in a new state, new factory built, etc.), each case has a 90% success rate likely? The latter, believe it or not, has an approximate 43% chance of becoming reality - much worse than contradicts the first option! With more links in a chain, has a greater probability of something going wrong. If a population could reach 1000%, but this, trade unions should drop the demand, the supply of fuel should collapse, a bankruptcy court should compel a competitor to pay their promised pension obligations, and new management to come to cut costs and stock option, will probably be disappointed.
Paragraph one of the trials
The proof that these two men is applied is more or less the same. According to sources, Peter Lynch used to start an egg timer when the phone with financial analysts and operators to force them to explain the basic premise of an idea to invest in less than a minute. Buffett recommend that you write a brief paragraph saying something along the lines of, "I'm buying $ 10000 shares of the Company XYZ at $ 25 per share, because I think (insert here the reason as the profit will grow twice as quicker than the current price-to - revenue ratio, assets are hidden in the balance sheet, there was a management change for the better, the valuation is too low, etc.) then control the situation, always aware of their basic thesis. The practical result is meat or substance of his argument of the matter is separated from the water by a nonsense. Too often, stockbrokers and financial journalists spew tens of facts that have regurgitated for 10k or an annual report. Therefore, many facts obscure the really important figures such as sales growth, profit margins, anticipated capital expenditures, expected depreciation, and return on equity. Investors instead become bogged down in the reading of a $ 12 million transactions in a company generating $ 20 billion in sales. In a vast majority of cases, such information is not particularly relevant or necessary.
Avoid multiple points
Another big advantage of "Kiss" that is basic factor in probability theory in their decisions. What you do not have: a population that has a 65% change to double over the next five years or a population that has the potential to quadruple if eight different events taking place all (perhaps a business license in a new state, new factory built, etc.), each case has a 90% success rate likely? The latter, believe it or not, has an approximate 43% chance of becoming reality - much worse than contradicts the first option! With more links in a chain, has a greater probability of something going wrong. If a population could reach 1000%, but this, trade unions should drop the demand, the supply of fuel should collapse, a bankruptcy court should compel a competitor to pay their promised pension obligations, and new management to come to cut costs and stock option, will probably be disappointed.
Monday, August 25, 2008
How to Invest smartly in Stocks
I've noticed that many of my readers were searching for this basic question of how to buy stocks, so I thought it might be useful to you to synthesize some of the major content that has generated in recent years, putting in one easy to find and easy to use location for your convenience. This product is not designed to be autonomous. Instead, each of the important concepts have been shown live with a link to a fuller, richer of resources or article detailing the specifics of that issue.
How to Invest in Stock - The four major forms of Invest There are typically four main ways to invest:
How to Invest in Stock - The four major forms of Invest There are typically four main ways to invest:
- Through a 401k plan or, if you work for a non-profit organization, a plan 403b
- Through a Traditional IRA, Roth IRA, or SEP-IRA account
- Through a brokerage account
- Through a direct stock purchase plan or dividend reinvestment plan (drip)
How to invest in stock - The six types of assets that could itself In general, there are six types of assets for the average investor is likely that in his own life:
- Populations common - owned enterprises
- Preferred Stock - special types of stocks that often pay high dividends but have limited upside
- Bonds - corporate bonds, municipal bonds, savings bonds, the U.S. government Treasury, etc.
- Money markets - highly liquid funds that are designed to protect their purchasing power; considered a cash equivalent
- Real estate investment funds or REITs - a special kind of company that designation does not allow the imposition within the company provided more than 90% of income has been paid to shareholders. The assets are often invested in a variety of real estate projects and property.
- Mutual funds including exchange of goodwill, index funds and actively managed funds.
How to Invest in Stock - Doing Research
When the investigation of an investment normally there are five documents that wants to get your hands on research on the relative merits of a potential values:
- The 10K - this is the annual filing with the Securities and Exchange Commission (SEC)
- The most recent 10Q - this is the quarterly filing with the SEC
- Proxy data - including information on the Board of Directors and management pay and shareholder proposals
- The most recent annual report - read the report of the Chairman, CEO, CFO and, sometimes, or other high-ranking officials to see how they see the company. Not all annual reports are created equal. In general, the best in the business is considered a letter by Warren Buffett of Berkshire Hathaway, which can be downloaded for free on its corporate website.
- One statistic that shows which dates back five or ten years. Several companies prepare such information, especially for a subscription, a Morningstar, Value Line, S & P and Moody's.
How to invest in stock - the three financial statements
There are three financial statements you will want to examine closely:
- The income statement
- The balance sheet
- The cash flow statement
Friday, July 4, 2008
Rejoice in a Stock Market Correction
Taking advantage of volatility in the market
The stock market is controlled by people and, as a result, emotions. The two most prominent of these are fear and greed. Under their sway, the market makes very little sense in the short term. On the slightest news of a sales decline or the first glimmer of hope in a clinical trial for a new drug, a company's stock can plummet or skyrocket far beyond the ranges of reason and logic. The good news is, this volatility can make you very, very rich.
A stock market correction may be based on emotion, not logicPresume there is a bookstore in New York City that you wish to purchase. The store sells $300,000 worth of books annually and is quite profitable. This particular bookstore is painted a light shade of blue. Each morning, the investment banker representing the current owners comes to your office and offers to sell you the property for what he believes it is worth on that particular day.
On Monday, he comes and offers to sell you the business for $500,000. You refuse; overpaying for a business, even an excellent one, is always folly. On Tuesday, he stops by and offers the store to you for $800,000 because he believe bookstores that are painted blue are on the rise. Once again, you send him on his way.
On Wednesday, however, the banker arrives at your office in a panic. Apparently, a number of students at a local high school began to burn books en masse and he is gravely concerned the bookstore business will soon have no value. As a result, he offers to sell you the business for $50,000. Realizing that it is completely illogical to assume a book burning is going to have any effect whatsoever on long-term profits, you readily accept the deal and buy the company for a fraction of its intrinsic value.
"Well, I'd never get a deal that good!" you might say. You are presented with them every day! When a company's stock plummets, people often panic and sell. Unless the business is truly facing extinction or a drastic decrease in value, this is insane. If your favorite ice cream went on sale, would you wait until it had doubled in price before you bought it!? Why should your favorite stock be any different? Coca-Cola is certainly more attractive at $20 per share than it is at $50 per share, regardless of any short term difficulties that may arise. An investor should feel no shame in exploiting the folly of Mr. Market.
Stock market corrections are filled with opportunitiesTrue fortunes are made during times of economic distress or financial corrections. Only one year before he completed the formation of U.S. Steel (which financial historians have called the deal of the 20th century), J.P. Morgan said that such a feat could never be accomplished by any man - until the markets crashed. The depressed valuations of the companies involved allowed him to purchase the business entities at a fraction of what they had been selling for twelve months earlier.
The next time the market is cut drastically to its knees, look around for the great, solid, blue chip companies that have weathered depressions countless times before. The odds are substantial they will be selling at discount prices, and when the market finally does recover (which it inevitably will), your portfolio will profit from the shrewd, logical investment decisions you made while the investing public was in a panic. The secret to wealth has always been to "buy when there's blood running in the street and sell when everyone is pounding at your door, clawing to own your equities." You must have enough faith in yourself to buy when the rest of the market is selling. Most people don't have the self-confidence and resolve to do so, and always end up following the crowd.
Remember, just because you follow the majority of people, doesn't mean the majority of people aren't wrong. That's why 95% of investors aren't driving Mercedes and living in Key West three months out of the year. Base your decisions on analysis and value and you will, more often than not, come out ahead.
Article source written by, Joshua Kennon (Beginner's Investing Guide)
The stock market is controlled by people and, as a result, emotions. The two most prominent of these are fear and greed. Under their sway, the market makes very little sense in the short term. On the slightest news of a sales decline or the first glimmer of hope in a clinical trial for a new drug, a company's stock can plummet or skyrocket far beyond the ranges of reason and logic. The good news is, this volatility can make you very, very rich.
A stock market correction may be based on emotion, not logicPresume there is a bookstore in New York City that you wish to purchase. The store sells $300,000 worth of books annually and is quite profitable. This particular bookstore is painted a light shade of blue. Each morning, the investment banker representing the current owners comes to your office and offers to sell you the property for what he believes it is worth on that particular day.
On Monday, he comes and offers to sell you the business for $500,000. You refuse; overpaying for a business, even an excellent one, is always folly. On Tuesday, he stops by and offers the store to you for $800,000 because he believe bookstores that are painted blue are on the rise. Once again, you send him on his way.
On Wednesday, however, the banker arrives at your office in a panic. Apparently, a number of students at a local high school began to burn books en masse and he is gravely concerned the bookstore business will soon have no value. As a result, he offers to sell you the business for $50,000. Realizing that it is completely illogical to assume a book burning is going to have any effect whatsoever on long-term profits, you readily accept the deal and buy the company for a fraction of its intrinsic value.
"Well, I'd never get a deal that good!" you might say. You are presented with them every day! When a company's stock plummets, people often panic and sell. Unless the business is truly facing extinction or a drastic decrease in value, this is insane. If your favorite ice cream went on sale, would you wait until it had doubled in price before you bought it!? Why should your favorite stock be any different? Coca-Cola is certainly more attractive at $20 per share than it is at $50 per share, regardless of any short term difficulties that may arise. An investor should feel no shame in exploiting the folly of Mr. Market.
Stock market corrections are filled with opportunitiesTrue fortunes are made during times of economic distress or financial corrections. Only one year before he completed the formation of U.S. Steel (which financial historians have called the deal of the 20th century), J.P. Morgan said that such a feat could never be accomplished by any man - until the markets crashed. The depressed valuations of the companies involved allowed him to purchase the business entities at a fraction of what they had been selling for twelve months earlier.
The next time the market is cut drastically to its knees, look around for the great, solid, blue chip companies that have weathered depressions countless times before. The odds are substantial they will be selling at discount prices, and when the market finally does recover (which it inevitably will), your portfolio will profit from the shrewd, logical investment decisions you made while the investing public was in a panic. The secret to wealth has always been to "buy when there's blood running in the street and sell when everyone is pounding at your door, clawing to own your equities." You must have enough faith in yourself to buy when the rest of the market is selling. Most people don't have the self-confidence and resolve to do so, and always end up following the crowd.
Remember, just because you follow the majority of people, doesn't mean the majority of people aren't wrong. That's why 95% of investors aren't driving Mercedes and living in Key West three months out of the year. Base your decisions on analysis and value and you will, more often than not, come out ahead.
Article source written by, Joshua Kennon (Beginner's Investing Guide)
The Investor's Manifesto
18 traits and practices that lead to investing success
Most successful investors exhibit certain traits, beliefs and characteristics. This is a compilation of those attributes I call the investor's manifesto. Not only can the investor's manifesto help you make the most of your money, it can help you enjoy your life.
1.) I am not afraid to take risks if fairly compensated.
2.) My family and friends are more important than my portfolio.
3.) I refuse to be a victim. If my boss will not promote me, I will work, save, and invest to make my own pay raise.
4.) I understand the difference between price and value. Price is what you pay. Value is what you get.
5.) I don't own a piece of stock; I own part of a business.
6.) I understand the importance of financial advisors. Unless I plan on devoting large amounts of time to studying the art of successful investing, I will seek their advice.
7.) I put money away on a regular basis, whether it be every week, month, or quarter.
8.) I invest in myself. Every day, I learn something new. It can be taking classes at the local college, studying art, or learning a new job skill. I am my most valuable investment.
9.) I understand that the most important part of the wealth equation is time. One dollar invested tomorrow is not worth nearly as much as one invested today.
10.) I don't feel the need to brag about my wealth.
11.) In my mind "short-term" is at least five years.
12.) I understand that checking the price of my investments on an hourly or daily basis is unnecessary and a waste of my time. As long as the fundamentals of the company have not changed, the day to day fluctuations in price do not bother me.
13.) My time is one of the most valuable assets I have. Therefore, I use it wisely.
14.) Every year, I read the 10K and annual report of each company in which I have an investment.
15.) I never put money into a company unless I understand the business, am certain it is selling at a substantial discount to its conservatively estimated intrinsic value, I have personal motivations (e.g., someone in which I have great faith, boasts unquestionable integrity and a long history of business success has taken over a company that is reasonably priced), or I am engaged in an arbitrage operation. If none of these is true, I invest in equities by purchasing low-cost index funds via a dollar-cost averaging plan.
16.) I know that investing without research is gambling.
17.) I understand that over time, those who choose the buy-and-hold method outperform those who frequently trade.
18.) Unless the income from my investments (i.e., dividends and interest) are absolutely necessary to maintain my lifestyle, I reinvest them. I understand the power of compounding will cause these seemingly small amounts to increase the value of my portfolio several times over if given enough time.
Most successful investors exhibit certain traits, beliefs and characteristics. This is a compilation of those attributes I call the investor's manifesto. Not only can the investor's manifesto help you make the most of your money, it can help you enjoy your life.
1.) I am not afraid to take risks if fairly compensated.
2.) My family and friends are more important than my portfolio.
3.) I refuse to be a victim. If my boss will not promote me, I will work, save, and invest to make my own pay raise.
4.) I understand the difference between price and value. Price is what you pay. Value is what you get.
5.) I don't own a piece of stock; I own part of a business.
6.) I understand the importance of financial advisors. Unless I plan on devoting large amounts of time to studying the art of successful investing, I will seek their advice.
7.) I put money away on a regular basis, whether it be every week, month, or quarter.
8.) I invest in myself. Every day, I learn something new. It can be taking classes at the local college, studying art, or learning a new job skill. I am my most valuable investment.
9.) I understand that the most important part of the wealth equation is time. One dollar invested tomorrow is not worth nearly as much as one invested today.
10.) I don't feel the need to brag about my wealth.
11.) In my mind "short-term" is at least five years.
12.) I understand that checking the price of my investments on an hourly or daily basis is unnecessary and a waste of my time. As long as the fundamentals of the company have not changed, the day to day fluctuations in price do not bother me.
13.) My time is one of the most valuable assets I have. Therefore, I use it wisely.
14.) Every year, I read the 10K and annual report of each company in which I have an investment.
15.) I never put money into a company unless I understand the business, am certain it is selling at a substantial discount to its conservatively estimated intrinsic value, I have personal motivations (e.g., someone in which I have great faith, boasts unquestionable integrity and a long history of business success has taken over a company that is reasonably priced), or I am engaged in an arbitrage operation. If none of these is true, I invest in equities by purchasing low-cost index funds via a dollar-cost averaging plan.
16.) I know that investing without research is gambling.
17.) I understand that over time, those who choose the buy-and-hold method outperform those who frequently trade.
18.) Unless the income from my investments (i.e., dividends and interest) are absolutely necessary to maintain my lifestyle, I reinvest them. I understand the power of compounding will cause these seemingly small amounts to increase the value of my portfolio several times over if given enough time.
3 Fundamental Truths: Dealing with Capital Losses
Falling stock prices are sometimes a hard pill to swallow but long-term investors shouldn't be concerned
Many investors have a hard time dealing with falling stock prices but for the wrong reasons. No matter how often you preach the virtues of the buy-and-hold method, the true test of courage comes when you watch your holdings nose dive twenty percent in one afternoon.
Anyone who has been through a bear market knows that it takes tremendous discipline and dedication to stick to your guns while everyone else liquidates their holdings. Plagued by images of depression, recession, and corporate layoffs, manic Wall Street becomes a breeding ground for chaos and faulty logic. Perfectly good companies begin selling for fractions of their true value, despite a lack of change in the long-term economics of the business.
Article source written by, Joshua Kennon (Beginner's Investing Guide)
Here are three fundamental truths that will help you deal with short-term market losses.
Truth One: You own a business, not a stock
What you are holding in your portfolio is a piece of a business, not a stock. Investors who purchase shares of stock simply because they are going "up" or are going to be the "next big thing" are essentially gamblers. They buy a commodity with the belief (rational or not) that the next person in line will pay a higher price for it than they did. The problem is, this cycle can't go on forever, and at some point, someone is going to look around, realize what happened, and bail ship.
In order to be a successful investor you must do two things. First, remove all emotions from each of your financial decisions. Romeo and Juliet were terrific lovers, but not very logical people (and look where that got them). Letting your heart and emotions impact your actions is foolish in most circumstances, deadly in economic ones. Second, learn to separate the underlying business from the stock price; they are not the same thing (read that again). You've heard it said a million times; even a great company is a lousy investment if you pay too much for it.
Truth Two: If you are a long-term investor, falling prices are a blessing
The only time a bear market is bad for you is when you need your money immediately. For those who are investing with a time frame of ten or more years, declining prices represent only one thing: the opportunity to buy more of their favorite company at a lower price. It's kind of like a giant garage sale where the lady of the house decides she wants new drapes and, as a result, decides to sell all of her living room furniture for half price. It doesn't have to make sense to the buyer. Indeed, a smart one would jump at the opportunity. All too often, investors try to convince the woman that she shouldn't be selling her coffee table to them for so cheap.
Truth Three: It doesn't matter
Most of the investment crowd will fight it, but it's true. In the end, your pocketbook really isn't what matters. Think back to the time before you owned any investments. You were still alive then, right? You could still have a good time? You still had friends?
Money is literally a piece of colored paper with the picture of a dead person on it. Bottom line. Society has assigned value to it, so we accept it, and it can be a very powerful tool in our lives.
You must never make it an end unto itself. Wealth can never be the "goal". It is the means by which we accomplish things. It's like owning a hammer - no sane person wants to own the hammer for the sake of "owning it" - they want it for what it can do. It can build and create.
That's the goal of prosperity; to attain the financial freedom to provide a better life for yourself, your family, and everyone with whom you come in contact. If you make the pursuit of riches your highest goal in life, you will feel miserable and empty.
Your blessings, gifts, and finances only realize their true value when you give them. The guaranteed way to feel wealthier is to give what you already have. You see the joy it can bring others. The feeling of generosity and happiness that comes with giving is true wealth.
Many investors have a hard time dealing with falling stock prices but for the wrong reasons. No matter how often you preach the virtues of the buy-and-hold method, the true test of courage comes when you watch your holdings nose dive twenty percent in one afternoon.
Anyone who has been through a bear market knows that it takes tremendous discipline and dedication to stick to your guns while everyone else liquidates their holdings. Plagued by images of depression, recession, and corporate layoffs, manic Wall Street becomes a breeding ground for chaos and faulty logic. Perfectly good companies begin selling for fractions of their true value, despite a lack of change in the long-term economics of the business.
Article source written by, Joshua Kennon (Beginner's Investing Guide)
Here are three fundamental truths that will help you deal with short-term market losses.
Truth One: You own a business, not a stock
What you are holding in your portfolio is a piece of a business, not a stock. Investors who purchase shares of stock simply because they are going "up" or are going to be the "next big thing" are essentially gamblers. They buy a commodity with the belief (rational or not) that the next person in line will pay a higher price for it than they did. The problem is, this cycle can't go on forever, and at some point, someone is going to look around, realize what happened, and bail ship.
In order to be a successful investor you must do two things. First, remove all emotions from each of your financial decisions. Romeo and Juliet were terrific lovers, but not very logical people (and look where that got them). Letting your heart and emotions impact your actions is foolish in most circumstances, deadly in economic ones. Second, learn to separate the underlying business from the stock price; they are not the same thing (read that again). You've heard it said a million times; even a great company is a lousy investment if you pay too much for it.
Truth Two: If you are a long-term investor, falling prices are a blessing
The only time a bear market is bad for you is when you need your money immediately. For those who are investing with a time frame of ten or more years, declining prices represent only one thing: the opportunity to buy more of their favorite company at a lower price. It's kind of like a giant garage sale where the lady of the house decides she wants new drapes and, as a result, decides to sell all of her living room furniture for half price. It doesn't have to make sense to the buyer. Indeed, a smart one would jump at the opportunity. All too often, investors try to convince the woman that she shouldn't be selling her coffee table to them for so cheap.
Truth Three: It doesn't matter
Most of the investment crowd will fight it, but it's true. In the end, your pocketbook really isn't what matters. Think back to the time before you owned any investments. You were still alive then, right? You could still have a good time? You still had friends?
Money is literally a piece of colored paper with the picture of a dead person on it. Bottom line. Society has assigned value to it, so we accept it, and it can be a very powerful tool in our lives.
You must never make it an end unto itself. Wealth can never be the "goal". It is the means by which we accomplish things. It's like owning a hammer - no sane person wants to own the hammer for the sake of "owning it" - they want it for what it can do. It can build and create.
That's the goal of prosperity; to attain the financial freedom to provide a better life for yourself, your family, and everyone with whom you come in contact. If you make the pursuit of riches your highest goal in life, you will feel miserable and empty.
Your blessings, gifts, and finances only realize their true value when you give them. The guaranteed way to feel wealthier is to give what you already have. You see the joy it can bring others. The feeling of generosity and happiness that comes with giving is true wealth.
7 Rules of Wealth Building
Most parents want to teach their children responsibility - how to become self sufficient and succeed in life (after all, no one plans on raising a dead beat). However, very few actually accomplish this task. Why? Because, as parents, we are limited to the experiences our parents passed on to us; the antiquated notion that "responsibility" is simply getting a job, saving a little money, and maybe purchasing a car or some equally important item. Hopefully these seven rules will open your eyes and help you teach your children to avoid the traps that have stolen financial success from so many people.Wealth Building Rule 1: Put Off Marriage
Your biggest obstacle to attaining wealth is YOU. Too often, people live their lives in a manner that is not conducive to creating riches and then get frustrated at "the system" when they only really have themselves to blame.
One of the most important financial decisions you will ever make is marriage (more specifically who you marry and when). By putting off the walk down the aisle for a few years, you can save a decade worth of frustration. Your first goal should be to become financially independent, with little or no debt, and have your investments in place. Once you have these three things, your odds of success are drastically improved by beginning your journey on a level playing field (after all, the number-one reason for divorce is financial trouble).
Wealth Building Rule 2: Debt is a Disease
With a few notable exceptions, debt is a form of bondage; a disease that enslaves the borrower. A few years ago, there was a young lady attending college who shot herself because she couldn't pay back $2,300 in credit card debt. Although an extreme example, it is a testament to the power money has over peoples' lives. Imagine your life without owing anyone anything; your car, your house, your education, all paid for in full. Like what you see? When you want it badly enough, you will make extinguishing your debt your number one priority.
Wealth Building Rule 3: If You Don't Like Where your Parents Were at Your Age - Do Things Differently
The old cliché that "insanity is doing the same thing over and over expecting different results," holds just as true today as it did when it was originally written. If you don't like where your parents were at your age, stop what you are doing. During your childhood, they taught you all they knew about money. For many people, these early years established how they feel about their finances today. In order to become financially successful, you must do something different than they did. Otherwise, you will end up exactly as they are.
Wealth Building Rule 4: When you Begin a Job, Look at the Pay of the Highest Employee
Whether you are looking for employment now or are thinking about it sometime in the near future, one of the most important things for you to do is to look at what the top-dog gets at any company for which you are considering working. This will give you an idea of how high you can expect to climb in terms of earnings and promotion. If the CEO is making $30,000 a year, you have no chance to make six figures. Select a job accordingly.
Wealth Building Rule 5: Do Something You Love and Get Paid for It
I remember going into college and being surrounded with people who wanted to be artists, scientists, and businessmen, but instead did what their parents or grandparents told them to do. There is no honor in being a doctor or a lawyer if you wake up every morning and hate your job. Pick a profession you love and you'll never have to work a day in your life.
Wealth Building Rule 6: Understand the Money Myth
Money is nothing more than a piece of paper with the image of a long-dead person on it. When you understand that any power it has over you is derived from your relationship with it, you suddenly become free from the constant pressures and stress of thinking about it. Especially at times such as these, if you are putting money away for ten, fifteen, or twenty years down the road, stop checking your portfolio every day! There is nothing you can gain from it except stress.
Wealth Building Rule 7: Your New Commodity is Not Your Labor, It's Your Ideas
With the advent of the Internet and other technological advances, you are no longer limited to supporting yourself or making a living by your physical labor. The only limit you have on yourself now is your own imagination - your ideas are the most valuable thing you possess. Every man, woman, and child is a salesman for a living; if you don't own a business or investments, then you sell your manual labor to a company in exchange for a paycheck. Change your product. The gap between the rich and poor does indeed grow larger with each passing year, but not because of inequalities or any other such injustices. Instead, it is because the rich understand money and how to use it. Capital is literally a seed; learn how to plant it to produce the best harvest. When you do this, you will rule your finances, not the other way around.
Article source written by, Joshua Kennon (Beginner's Investing Guide)
How to Become Wealthy
1: Change the Way You Think About MoneyThe general population has a love / hate relationship with wealth. They resent those who have it, but spend their entire lives attempting to get it for themselves. The reason a vast majority of people never accumulate a substantial nest egg is because they don't understand the nature of money or how it works.
Cash, like a person, is a living thing. When you wake up in the morning and go to work, you are selling a product - yourself (or more specifically, your labor). When you realize that every morning your assets wake up and have the same potential to work as you do, you unlock a powerful key in your life. Each dollar you save is like an employee. Over the course of time, the goal is to make your employees work hard, and eventually, they will make enough money to hire more workers (cash). When you have become truly successful, you no longer have to sell your own labor, but can live off of the labor of your assets.
2: Develop an Understanding of the Power of Small Amounts
The biggest mistake most people make is that they think they have to start with an entire Napoleon-like army. They suffer from the "not enough" mentality; namely that if they aren't making $1,000 or $5,000 investments at a time, they will never become rich. What these people don't realize is that entire armies are built one soldier at a time; so too is their financial arsenal.
A friend of mine once knew a woman who worked as a dishwasher and made her purses out of used liquid detergent bottles. This woman invested and saved everything she had despite it never being more than a few dollars at a time. Now, her portfolio is worth millions upon millions of dollars, all of which was built upon small investments. I am not suggesting you become this frugal, but the lesson is still a valuable one. Do not despise the day of small beginnings!
3: With Each Dollar You Save, You Are Buying Yourself Freedom
When you put it in these terms, you see how spending $20 here and $40 there can make a huge difference in the long run. Since money has the ability to work in your place, the more of it you employ, the faster and larger it will grow. Along with more money comes more freedom - the freedom to stay home with your kids, the freedom to retire and travel around the world, or the freedom to quit your job. If you have any source of income, it is possible for you to start building wealth today. It may only be $5 or $10 at a time, but each of those investments is a stone in the foundation of your financial freedom.
4: You Are Responsible for Where You Are in Your Life
Years ago, a friend told me she didn't want to invest in stocks because she "didn't want to wait ten years to be rich..." she would rather enjoy her money now. The folly with this school of thinking is that the odds are, you are going to be alive in ten years. The question is whether or not you will be better off when you arrive there. Where you are right now is the sum total of the decisions you have made in the past. Why not set the stage for your life in the future right now?
5: Instead of Buying the Product... Buy the Stock!
Someone once asked me why they weren't wealthy. They always felt like they were putting money aside, yet never seemed to get any further ahead. The answer is simple. I told them to stop buying the products companies sell and start buying the company itself! A survey of America's affluent (those who make over $225,000 a year or own $3,000,000 in assets) revealed that 27-30% of all the income the wealthy earned went into investments and savings. That isn't a result of being rich, that is why they are rich. When the pain of getting out of the bondage of financial slavery is greater than the pain of changing your spending habits, you will become rich. Either change, or be content to live as you are.
6: Study and Admire Success and Those Who Have Achieved It... Then Emulate It
A very wise investor once said to pick the traits you admire and dislike the most about your heroes, then do everything in your power to develop the traits you like and reject the ones you don't. Mold yourself into who you want to become. You'll find that by investing in yourself first, money will begin to flow into your life. Success and wealth beget success and wealth. You have to purchase your way into that cycle, and you do so by building your army one soldier at a time and putting your money to work for you.
7: Realize that More Money is Not the Answer
More money is not going to solve your problem. Money is a magnifying glass; it will accelerate and bring to light your true habits. If you are not capable of handling a job paying $18,000 a year, the worst possible thing that could happen to you is for you to earn six figures. It would destroy you. I have met too many people earning $100,000 a year who are living from paycheck to paycheck and don't understand why it is happening. The problem isn't the size of their checkbook, it is the way in which they were taught to use money.
8: Unless Your Parents Were Wealthy, Don't Do What They Did
The definition of insanity is doing the same thing over and over again and expecting a different result. If your parents were not living the life you want to live then don't do what they did! You must break away from the mentality of past generations if you want to have a different lifestyle than they had.
To achieve the financial freedom and success that your family may or may not have had, you have to do two things. First, make a firm commitment to get out of debt. To find out which debts should be paid off before you invest and those that are acceptable, read Pay Off Your Debt or Invest?. Second, make saving and investing the highest financial priority in your life; one technique is to pay yourself first.
Purchasing equity is vital to your financial success as an individual whether you are in need of cash income or desire long-term appreciation in stock value. Nowhere else can your money do as much for you as when you use it to invest in a business that has wonderful long-term prospects.
9: Don't Worry
The miracle of life is that it doesn't matter so much where you are, it matters where you are going. Once you have made the choice to take control back of your life by building up your net worth, don't give a second thought to the "what ifs". Every moment that goes by, you are growing closer and closer to your ultimate goal - control and freedom.
Every dollar that passes through your hands is a seed to your financial future. Rest assured, if you are diligent and responsible, financial prosperity is an inevitability. The day will come when you make your last payment on your car, your house, or whatever else it is you owe. Until then, enjoy the process.
Article source written by, Joshua Kennon (Beginner's Investing Guide)
Monday, June 30, 2008
Seven Common Investor Mistakes
There are seven common mistakes made repeatedly by investors. Unfortunately, investors have been making these same mistakes since the dawn of modern markets and will likely be repeating them for years to come.
You can significantly boost your chances of investment success by becoming aware of these typical errors and taking steps to avoid them. In this article, we'll show you these seven mistakes and how to avoid them.
1. No Plan
As the old saying goes, if you don't know where you're going, any road will take you there. Solution?
Have a personal investment plan or policy that addresses the following:
Goals and objectives - Find out what you're trying to accomplish. Accumulating $100,000 for a child's college education or $2 million for retirement at age 60 are appropriate goals. Beating the market is not a goal.
Risks - What risks are relevant to you or your portfolio? If you are a 30-year-old saving for retirement, volatility isn't (or shouldn't be) a meaningful risk. On the other hand, inflation - which erodes any long-term portfolio - is a significant risk.
Appropriate benchmarks - How will you measure the success of your portfolio, its asset classes and individual funds or managers?
Asset allocation - What percentage of your total portfolio will you allocate to U.S. equities, international stocks, U.S. bonds, high-yield bonds, etc. Your asset allocation should accomplish your goals while addressing relevant risks.
Diversification - Allocating to different asset classes is the initial layer of diversification. You then need to diversify within each asset class. In U.S. stocks, for example, this means exposure to large-, mid- and small-cap stocks.
Your written plan's guidelines will help you adhere to a sound long-term policy even when current market conditions are unsettling. Having a good plan and sticking to it is not nearly as exciting or as much fun as trying to time the markets, but it will likely be more profitable in the long term.
2. Too Short of a Time Horizon
If you are saving for retirement 30 years hence, what the stock market does this year or next shouldn't be the biggest concern. Even if you are just entering retirement at age 70, your life expectancy is likely 15 to 20 years! If you expect to leave some assets to your heirs, then your time horizon is even longer. Of course, if you are saving for your daughter's college education and she's a junior in high school, then your time horizon is appropriately short and your asset allocation should reflect that fact. Most investors are too focused on the short term.
3. Too Much Attention
Given to Financial MediaThere is almost nothing on financial news shows that can help you achieve your goals. Turn them off. There are few newsletters that can provide you with anything of value. Even if there were, how do you identify them in advance?Think about it - if anyone really had profitable stock tips, trading advice or a secret formula to make big bucks, would they blab it on TV or sell it to you for $49 per month? No - they'd keep their mouth shut, make their millions and not have to sell a newsletter to make a living. Solution? Spend less time watching financial shows on TV and reading newsletters. Spend more time creating - and sticking to - your investment plan.
4. Not Rebalancing
Rebalancing is the process of returning your portfolio to its target asset allocation as outlined in your investment plan. Rebalancing is difficult because it forces you to sell the asset class that is performing well and buy more of your worst performing asset classes. This contrarian action is very difficult for many investors.
In addition, rebalancing is unprofitable right up to that point where it pays off spectacularly and the underperforming assets start to take off.
However, a portfolio allowed to drift with market returns guarantees that asset classes will be overweighted at market peaks and underweighted at market lows - a formula for poor performance.
Solution? Rebalance religiously and reap the long-term rewards.
5. Overconfidence in the Ability of Managers
From numerous studies, including Burton Malkiel's 1995 study entitled, "Returns From Investing In Equity Mutual Funds", we know that most managers will underperform their benchmarks. We also know that there's no consistent way to select - in advance - those managers that will outperform. We also know that very, very few individuals can profitably time the market over the long term. So why are so many investors confident of their abilities to time the market and select outperforming managers?Fidelity guru Peter Lynch once observed, "There are no market timers in the 'Forbes' 400'." Investors' misplaced overconfidence in their ability to market-time and select outperforming managers leads directly to our next common investment mistake.
6. Not Enough Indexing
There is not enough time to recite many of the studies that prove that most managers and mutual funds underperform their benchmarks. Over the long-term, low-cost index funds are typically upper second-quartile performers, or better than 65-75% of actively managed funds.
Despite all the evidence in favor of indexing, the desire to invest with active managers remains strong. John Bogle, the founder of Vanguard, says it's because, "Hope springs eternal. Indexing is sort of dull. It flies in the face of the American way [that] 'I can do better.'" Solution?
Index all or a large portion (70-80%) of all your traditional asset classes. If you can't resist the excitement of pursuing the next great performer, set aside a portion (20-30%) of each asset class to allocate to active managers. This may satisfy your desire to pursue outperformance without devastating your portfolio.
7. Chasing Performance
Many investors select asset classes, strategies, managers and funds based on recent strong performance. The feeling that "I'm missing out on great returns" has probably led to more bad investment decisions than any other single factor. If a particular asset class, strategy or fund has done extremely well for three or four years, we know one thing with certainty: we should have invested three or four years ago. Now, however, the particular cycle that led to this great performance may be nearing its end. The smart money is moving out and the dumb money is pouring in. Solution? Don't be dumb. Stick with your investment plan and rebalance, which is the polar opposite of chasing performance.
Conclusion
Investors who recognize and avoid these seven common mistakes give themselves a great advantage in meeting their investment goals. Most of the solutions above are not exciting and they don't make great cocktail party conversation. However, they are likely to be profitable. And isn't that why we really invest?
by Jay Yoder
You can significantly boost your chances of investment success by becoming aware of these typical errors and taking steps to avoid them. In this article, we'll show you these seven mistakes and how to avoid them.
1. No Plan
As the old saying goes, if you don't know where you're going, any road will take you there. Solution?
Have a personal investment plan or policy that addresses the following:
Goals and objectives - Find out what you're trying to accomplish. Accumulating $100,000 for a child's college education or $2 million for retirement at age 60 are appropriate goals. Beating the market is not a goal.
Risks - What risks are relevant to you or your portfolio? If you are a 30-year-old saving for retirement, volatility isn't (or shouldn't be) a meaningful risk. On the other hand, inflation - which erodes any long-term portfolio - is a significant risk.
Appropriate benchmarks - How will you measure the success of your portfolio, its asset classes and individual funds or managers?
Asset allocation - What percentage of your total portfolio will you allocate to U.S. equities, international stocks, U.S. bonds, high-yield bonds, etc. Your asset allocation should accomplish your goals while addressing relevant risks.
Diversification - Allocating to different asset classes is the initial layer of diversification. You then need to diversify within each asset class. In U.S. stocks, for example, this means exposure to large-, mid- and small-cap stocks.
Your written plan's guidelines will help you adhere to a sound long-term policy even when current market conditions are unsettling. Having a good plan and sticking to it is not nearly as exciting or as much fun as trying to time the markets, but it will likely be more profitable in the long term.
2. Too Short of a Time Horizon
If you are saving for retirement 30 years hence, what the stock market does this year or next shouldn't be the biggest concern. Even if you are just entering retirement at age 70, your life expectancy is likely 15 to 20 years! If you expect to leave some assets to your heirs, then your time horizon is even longer. Of course, if you are saving for your daughter's college education and she's a junior in high school, then your time horizon is appropriately short and your asset allocation should reflect that fact. Most investors are too focused on the short term.
3. Too Much Attention
Given to Financial MediaThere is almost nothing on financial news shows that can help you achieve your goals. Turn them off. There are few newsletters that can provide you with anything of value. Even if there were, how do you identify them in advance?Think about it - if anyone really had profitable stock tips, trading advice or a secret formula to make big bucks, would they blab it on TV or sell it to you for $49 per month? No - they'd keep their mouth shut, make their millions and not have to sell a newsletter to make a living. Solution? Spend less time watching financial shows on TV and reading newsletters. Spend more time creating - and sticking to - your investment plan.
4. Not Rebalancing
Rebalancing is the process of returning your portfolio to its target asset allocation as outlined in your investment plan. Rebalancing is difficult because it forces you to sell the asset class that is performing well and buy more of your worst performing asset classes. This contrarian action is very difficult for many investors.
In addition, rebalancing is unprofitable right up to that point where it pays off spectacularly and the underperforming assets start to take off.
However, a portfolio allowed to drift with market returns guarantees that asset classes will be overweighted at market peaks and underweighted at market lows - a formula for poor performance.
Solution? Rebalance religiously and reap the long-term rewards.
5. Overconfidence in the Ability of Managers
From numerous studies, including Burton Malkiel's 1995 study entitled, "Returns From Investing In Equity Mutual Funds", we know that most managers will underperform their benchmarks. We also know that there's no consistent way to select - in advance - those managers that will outperform. We also know that very, very few individuals can profitably time the market over the long term. So why are so many investors confident of their abilities to time the market and select outperforming managers?Fidelity guru Peter Lynch once observed, "There are no market timers in the 'Forbes' 400'." Investors' misplaced overconfidence in their ability to market-time and select outperforming managers leads directly to our next common investment mistake.
6. Not Enough Indexing
There is not enough time to recite many of the studies that prove that most managers and mutual funds underperform their benchmarks. Over the long-term, low-cost index funds are typically upper second-quartile performers, or better than 65-75% of actively managed funds.
Despite all the evidence in favor of indexing, the desire to invest with active managers remains strong. John Bogle, the founder of Vanguard, says it's because, "Hope springs eternal. Indexing is sort of dull. It flies in the face of the American way [that] 'I can do better.'" Solution?
Index all or a large portion (70-80%) of all your traditional asset classes. If you can't resist the excitement of pursuing the next great performer, set aside a portion (20-30%) of each asset class to allocate to active managers. This may satisfy your desire to pursue outperformance without devastating your portfolio.
7. Chasing Performance
Many investors select asset classes, strategies, managers and funds based on recent strong performance. The feeling that "I'm missing out on great returns" has probably led to more bad investment decisions than any other single factor. If a particular asset class, strategy or fund has done extremely well for three or four years, we know one thing with certainty: we should have invested three or four years ago. Now, however, the particular cycle that led to this great performance may be nearing its end. The smart money is moving out and the dumb money is pouring in. Solution? Don't be dumb. Stick with your investment plan and rebalance, which is the polar opposite of chasing performance.
Conclusion
Investors who recognize and avoid these seven common mistakes give themselves a great advantage in meeting their investment goals. Most of the solutions above are not exciting and they don't make great cocktail party conversation. However, they are likely to be profitable. And isn't that why we really invest?
by Jay Yoder
Invest Without Stress
Many investors get a lot of anxiety chasing mutual fund returns, hoping that history repeats itself while they are in the fund. In fact, a fund which has already yielded large returns has less of a chance to do so again when compared with its peer group. A better idea, rather than stressing out over the vagaries of the financial markets, is to look for wisdom in time-tested, academic methods. Once your high-quality investment plan is set up, relax. Let your investment compound, understanding that the plan is rooted in knowledge, not hype.Good Soil
As when growing a garden, you want to invest in good soil (strategy). Accordingly, you can expect there to be some rainy days (
with the sunny (bull market). Both are needed for overall growth. Once a garden (money) starts to grow, don't uproot it and replant, lest it wither and die. Set up your investment wisely and then let it grow.
Academic research creates good soil. The body of knowledge about the market goes through a rigorous review process whose primary goal is truth or knowledge rather than profit. Thus, the information is disinterested - something you should always look for in life to make wise decisions.
Greatly distilling this body of knowledge, here are a few key points to remember when it comes to investing in the stock market.
Risk and return
This concept is similar to the saying "there is no free lunch". In money terms, if you want more return, you are going to have to invest in funds that have a greater probability of going south (high risk). Thus, the law of large numbers really comes into play here, since investing in small, unproven companies may yield better potential returns, while larger companies which have already undergone substantial growth may not give you comparable results.
Market efficiency
This concept says that everything you need to know about conventional investments is already priced into them. Market efficiency supports the concept of risk and return; thus, don't waste your time at the library with a "Value Line investment" unless it provides entertainment value. Essentially, when you look at whether or not to invest in a large corporation, it is unlikely that you are going to find any information different from what others have already found. Interestingly, this also gives insight into how you make abnormal returns by investing in unknown companies like "Bob's Tomato Shack" if you really have the time and business acumen to do front-line research.
Modern portfolio theory (MPT)
Modern portfolio theory (MPT) basically says that you want to diversify your investments as much as possible in order to get rid of company- or stock-cspecific risk, thus incurring only the lowest common denominator - market risk. Essentially, you are using the law of large numbers in order to maximize returns while minimizing risk for a given market exposure.
Now here is where things get really interesting! We just found the way to optimize your risk-return tradeoff for a given market level of risk by being well diversified in your investments. However, you can further adjust the investment risk downwards by lending money (investing some of it in risk-free assets) or upwards by borrowing it (margin investing).
Best Market Portfolio
Academics have created models of the market portfolio, consisting of a weighted sum of every asset in the market, with weights in the proportions that the assets exist in the market. Many think of this as being like the S&P 500, but that is an index of only the 500 largest companies in the U.S. Instead, think total market and think globally. One limitation is that while you are investing in the world, you are spending your dollars in your own country, so at this point things get a little dicey.
Roughly, the world market cap is about one-third U.S. and two-thirds international. As mentioned earlier, if you live in the U.S., this is primarily where you spend your dollars, and thus you could either hedge the currency or beef up the U.S. exposure. To keep this simple and comfortable to the investor, a 50% U.S. / 50% international weighting will help you to get started.
Putting This Into Practice
You can achieve this weighting by selecting ETFs to replicate the market portfolio. You can buy an extended U.S. ETF and an international ETF, put them together and you have your duck soup! Now, you need to assess your greed versus fear: e.g., how much of your investment you want to put into the market portfolio versus T-bills. If you are more greedy than fearful, you could even do some margin investing.
A key item you'll want to consider when assessing your greed factor is the return potential. As a general rule, for the market portfolio estimate a 10% return on average with 20% annual swings up or down not uncommon. Compare this to U.S. Treasuries at a 3-4% rate of return with little principal swings if kept in short duration. Does knowing the difference of return vs. risk change your level of fear, greed or risk tolerance?
Risky Business
To uncover your personal risk status, you must assess your financial resilience first. This is how able you are to sustain a financial loss. How much portfolio value can you put at risk? Since the market generally goes up over time, this really becomes an issue of time horizon. If you have Junior's tuition due in a year, your time horizon is short on the section of your portfolio that must cover that expense. Conversely, if you are just starting your career, you can better ride out any storms from a longer time horizon.
Second, you must assess your psychological resilience. What would keep you up at night? If you are an anxious individual who checks the stock market every day, you probably should keep your market exposure low. However, if you are more comfortable with the market and are too busy to constantly review stock quotes, your psychology is better suited for a higher market portfolio weighting.
Conclusion
One of the best lines from a common cartoon to take with you each day is Lion King's "Hakuna matata," which means "No worries!" If you enjoy stock picking, go nuts, but do so for entertainment. If investing your nest egg is likely to cause you some anxiety, seek the academic, time-tested good soil and then rest well at night knowing you have done the due diligence and nothing more than modest rebalancing as necessary. A healthy harvest should follow as you learn to grow your green investing thumb.
by Dan Mongoose
Saturday, June 28, 2008
what's investing
in·vest
play_w2("I0215500")
(n-vst)
v. in·vest·ed, in·vest·ing, in·vests
v.tr.
1. To commit (money or capital) in order to gain a financial return: invested their savings in stocks and bonds.
2.
a. To spend or devote for future advantage or benefit: invested much time and energy in getting a good education.
b. To devote morally or psychologically, as to a purpose; commit: "Men of our generation are invested in what they do, women in what we are" Shana Alexander.
3. To endow with authority or power.
4. To install in office with ceremony: invest a new emperor.
5. To endow with an enveloping or pervasive quality: "A charm invests a face/Imperfectly beheld" Emily Dickinson.
6. To clothe; adorn.
7. To cover completely; envelop.
8. To surround with troops or ships; besiege. See Synonyms at besiege.
v.intr.
To make investments or an investment: invest in real estate.
Noun
1.investing - the act of investing; laying out money or capital in an enterprise with the expectation of profit
Investment or investing[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets.
source from dictionary/ thesaurus-the free dictionary
play_w2("I0215500")
(n-vst)
v. in·vest·ed, in·vest·ing, in·vests
v.tr.
1. To commit (money or capital) in order to gain a financial return: invested their savings in stocks and bonds.
2.
a. To spend or devote for future advantage or benefit: invested much time and energy in getting a good education.
b. To devote morally or psychologically, as to a purpose; commit: "Men of our generation are invested in what they do, women in what we are" Shana Alexander.
3. To endow with authority or power.
4. To install in office with ceremony: invest a new emperor.
5. To endow with an enveloping or pervasive quality: "A charm invests a face/Imperfectly beheld" Emily Dickinson.
6. To clothe; adorn.
7. To cover completely; envelop.
8. To surround with troops or ships; besiege. See Synonyms at besiege.
v.intr.
To make investments or an investment: invest in real estate.
Noun
1.investing - the act of investing; laying out money or capital in an enterprise with the expectation of profit
Investment or investing[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets.
source from dictionary/ thesaurus-the free dictionary
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