Investment Losses

Pat Regan asked:


Investment advice is usually geared toward those with thousands, or at least $1,000 to invest, in addition to the standard three-to-six-months salary socked away in a savings account.

Most of us know how important it is to supplement our retirement with additional investment in traditional taxable investment accounts. Simply maxing out your IRA contributions and putting away 6% of your paycheck into the employer’s 401(k) just may not do it, but not everyone has the thousands that most investment advice requires.Here is a plan developed with the ultra-small investor in mind. It takes just $100, every month for a year.

Should You Invest?

First, it is important to prioritize your financial concerns. If you have high-interest credit card debt, do not invest until you are debt free. While it is possible to make more money investing than you are losing on finance charges, it is highly unlikely. Your money is best spent lowering credit card balances.

Also, if you have no cash savings, you should consider putting this plan off until you have savings equal to at least three months’ salary.

Finally, if you would be devastated if you lost all of the money you invested, you should probably stay away from directly investing. While not likely if you are conservative, it is possible to lose all or some of the money you invest, no matter what the security.

Start Investing With Just $100

1. Open a brokerage account with a low-cost online broker. It’s important that you’re not paying more than $5 per trade, because that’s money that will be coming out of your investment. Also, make sure that the broker you choose has no minimum account balance, or fees will eat up your entire balance. For more about discount stock brokers you can visit our broker comparison chart.

2. Fund your account. This is where you send your first $100 to the broker via check, wire transfer, or ACH transfer. I recommend ACH transfer, which is like an electronic check, because a check will take a few weeks to process and a wire transfer is too costly for investing such a small amount.

3. Make your first investment.

What you invest in is, of course very important, and professional investment advice is too expensive if you’re only investing $100. But studies have shown that the best returns come from widely diverse portfolios.

Now, you can’t easily have a widely diverse portfolio with $100, since that won’t even get you one share of Google (GOOG) or Toyota (TM). But Exchange Traded Funds (ETFs) make it easy to invest a small amount of money in a wide variety of securities, because they are shares in a larger pool of securities. The Vanguard Total Stock Market VIPER (VTI) tracks over 6,000 U.S. stocks, and it’s like investing your first $100 in the entire U.S. stock market. The iShares MSCI-EAFE (EFA) invests in stocks from Europe, Australia and Asia. The iShares Lehman Aggregate Bond (AGG) tracks the Lehman Brothers Aggregate Bond Index, and it’s like investing your $100 in the entire bond market.

If, after three months, you have put $100 into each of these funds, you will have a well-diversified portfolio that should withstand most of the market’s fluctuations. Losses in any particular sector of the stock market should be offset by gains in other areas of the market. Add to it each month, never investing less than $100 at a time, and you should see the value of your account grow just as the stock market does.

There are many ETFs to choose from and they are getting more diverse, including junk bond and commodities funds. Personally I would stay away from them until there’s at least $1,000 in stock and traditional bond ETFs, since the majority of your portfolio should include traditional investments, not alternative investments.

As you watch your investment grow (and then pull back, and then grow again) you should learn more about asset allocation and portfolio diversification, which are the keys to investment success. The more diverse your investments, the more you will be able to withstand volatile markets when stocks dip.

Finally, when the total value of your investment reaches $10,000, you should consider seeking professional investment advice and transferring your holdings to traditional mutual funds, which are a bit easier to manage, but typically have higher investment minimums.



ALVA

Mike asked:


I am a novice trader of the futures market. In particular, the e-mini Russell 2000 because of its liquidity, low investment, and high potential gain. I have been trying to achieve a reliable and consistent strategy to pull even just a few points out of the market a week. My results thus far have been weak. I have had some gains, but my losses slowly eat away these gains and then some. Consequently, I see my account slowly decreasing. Does anybody that reads these things trade futures and have any advice or a decent strategy on how to consistently gain a few points a week in the futures market? Thanks in advance.

PASQUALE

Robert asked:


World wide property investment is also known as International Investment property. The idea is to invest on heartfelt estate or property overseas such as vacation houses and condos, or even land. This class of investment scheme has increasingly become generally accepted as a legitimate and practical trade in recent days. With its development, the international market specifically caters to the investor’s individual requirements, making it one of the key factors to winner. Due to the popularity of international investment property, many websites, devoted to portion international realtors, investors, developers, and property owners to touch and do trade online, have been fashioned.

Markets vary in language of fiscal output. Some investors are necessary to invest a large quantity of money for a particular property, while other properties only expect a smallest quantity. place is the determining factor for the quantity of investment necessary.

The phrase international evidently denotes any place overseas. property investment can be in Asia, Europe, Africa or the internal East. Most international investors do not only take into account the place of the prospective property to invest in, but also the country’s following and economic stability. If the country’s following and economic location is shaky, it is not shrewd to invest in such a country because the likelihood of receiving back your investment is nil; or, takes longer than estimated which is still considered as more of a harm instead than earnings.

Today, worldwide property investment is broadly viewed for the most part as a dependable find of investment profit. Big-time investors choose to add more diversity in its folder by engaging into macro investments. Purchasing properties in different countries does not only add to the class in the investor’s group of investments, but it also gives more opportunity for generating earnings as earnings will come from different countries.

Investors are very important in this class of trade. To protect the welfare of investors and their hope investment likely, The International property Investment interact or IPIN was fashioned. The organization’s levy is to assist investors find steadfast and calm opportunities for investment in investment-friendly areas around the sphere.

Admittedly, the world has a lot of properties for deal. To make it easier, a someone can first originate identifying properties put on deal by country, next display it by place per country, then categorize it by type; such as land, commercial property, flats and apartments, villas and houses, so on and so forward. After doing these, you can now complete the incline you have fashioned and place it on your website.

Over the days, more and more countries have participated in international trade opportunities such as the international property investment. International realtors and international property investors have seen Australia, Bali, Egypt, France, Italy, Dubai, England, and Malaysia as great countries to invest in. While other countries have increasingly participated by creating their own property and investment companies, in which most trade deals are done online.

International property investment is not rocket science. You can just think of it as a heartfelt estate trade on a macro balance with the use of the internet. All you have to do is to take which position to play – an international heartfelt estate agent, or an international investor



THADDEUS

Robert Ruby asked:


Are IRA good investments? With the ups and downs of the stock market the growth of IRA investments may not be what you had expected if you only have your IRA invested in the stock market. There are other investments besides the stock market where you can invest your IRA money. I’ll tell you another great investment a little bit later in this article.

If you’ve set your hopes on a carefree retirement without having to worry about money, the growth of IRA investments needs to be good. If you live in the north like I do, one of your dreams may be going south for the winter. That can be a costly dream, so you may want to get your ducks in a row early on in your investment strategy so you will have enough money to get away from the harsh north winters.

When looking at the question are IRA good investments, you need to know the benefits of investing in an IRA. A traditional IRA is tax deferred, which means you don’t pay income taxes on the amount you invest in the year you invest it. Instead you pay income tax on the entire amount you withdraw it.

Another type of IRA is a Roth IRA. With a Roth IRA you invest after tax dollars, which means it is not tax deferred like a traditional IRA, but you don’t pay any taxes when you withdraw your money. So the growth of IRA investments in this scenario can be very advantageous, because you will be withdrawing both principle and interest tax free, which means your growth is tax free.

Both scenarios should answer the question are IRA good investments with a resounding yes. For one thing you are putting aside some money for retirement, which is the first thing you need to do to insure those winters down south. You certainly won’t be getting away from the cold harsh winters if you are living just on Social Security income.

And second with both scenarios, you are realizing a tax savings; either at time of investment or at time of withdrawal. Tax savings mean more money in your pocket to go south for the winter. Both scenarios are good.

One thing you can do with your IRA accounts is to put that money in a self directed IRA. With a self directed IRA you can invest your hard earned money where you want to direct it, not where some stock broker or banker wants you to invest it. Many times the advise of a stockbroker or banker makes money for them, but not necessarily for you.

When you are the one directing your IRA you can be confident that you have it where you want it. One of the places that many investors overlook when looking for growth of IRA investments is real estate. You can have your self directed IRA invested in real estate and earn great returns.

So when asking yourself are IRA good investments, look at real estate. When investing in real estate you can see the growth of IRA investments doing some positive good for communities by providing housing for people. There is a company that offers turnkey investments for a self directed IRA that provides you with everything you need to know about investing for the betterment of communities with Socially-Conscious Investing To Empower Urban Communities.

Now that you’ve heard about it, check it out and see your retirement dreams come true when you see the power of the growth of IRA investments with real estate. You can earn money for retirement as you help others obtain affordable housing they need.

 



BRADY

Dirk D asked:


Just wondering. Every time that huge losses are announced in the US, some middle eastern government investment firm seems to be investing more in the firm. Citibank is just one example. Are they just trying to prop up the dollar, or do they really think that US financial institutions are a good investment right now?

JONATHAN

Geoff Gannon asked:


Different sources define value investing differently. Some say value investing is the investment philosophy that favors the purchase of stocks that are currently selling at low price-to-book ratios and have high dividend yields. Others say value investing is all about buying stocks with low P/E ratios. You will even sometimes hear that value investing has more to do with the balance sheet than the income statement.

In his 1992 letter to Berkshire Hathaway shareholders, Warren Buffet wrote:

“We think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value - in the hope that it can soon be sold for a still-higher price - should be labeled speculation (which is neither illegal, immoral nor - in our view - financially fattening).”

“Whether appropriate or not, the term ‘value investing’ is widely used. Typically, it connotes the purchase of stocks having attributes such as a low ratio of price to book value, a low price-earnings ratio, or a high dividend yield. Unfortunately, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments. Correspondingly, opposite characteristics - a high ratio of price to book value, a high price-earnings ratio, and a low dividend yield - are in no way inconsistent with a ‘value’ purchase.” Buffett’s definition of “investing” is the best definition of value investing there is. Value investing is purchasing a stock for less than its calculated value.

Tenets of Value Investing

1) Each share of stock is an ownership interest in the underlying business. A stock is not simply a piece of paper that can be sold at a higher price on some future date. Stocks represent more than just the right to receive future cash distributions from the business. Economically, each share is an undivided interest in all corporate assets (both tangible and intangible) - and ought to be valued as such.

2) A stock has an intrinsic value. A stock’s intrinsic value is derived from the economic value of the underlying business.

3) The stock market is inefficient. Value investors do not subscribe to the Efficient Market Hypothesis. They believe shares frequently trade hands at prices above or below their intrinsic values. Occasionally, the difference between the market price of a share and the intrinsic value of that share is wide enough to permit profitable investments. Benjamin Graham, the father of value investing, explained the stock market’s inefficiency by employing a metaphor. His Mr. Market metaphor is still referenced by value investors today:

“Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.”

4) Investing is most intelligent when it is most businesslike. This is a quote from Benjamin Graham’s “The Intelligent Investor”. Warren Buffett believes it is the single most important investing lesson he was ever taught. Investors ought to treat investing with the seriousness and studiousness they treat their chosen profession. An investor should treat the shares he buys and sells as a shopkeeper would treat the merchandise he deals in. He must not make commitments where his knowledge of the “merchandise” is inadequate. Furthermore, he must not engage in any investment operation unless “a reliable calculation shows that it has a fair chance to yield a reasonable profit”.

5) A true investment requires a margin of safety. A margin of safety may be provided by a firm’s working capital position, past earnings performance, land assets, economic goodwill, or (most commonly) a combination of some or all of the above. The margin of safety is manifested in the difference between the quoted price and the intrinsic value of the business. It absorbs all the damage caused by the investor’s inevitable miscalculations. For this reason, the margin of safety must be as wide as we humans are stupid (which is to say it ought to be a veritable chasm). Buying dollar bills for ninety-five cents only works if you know what you’re doing; buying dollar bills for forty-five cents is likely to prove profitable even for mere mortals like us.

What Value Investing Is Not

Value investing is purchasing a stock for less than its calculated value. Surprisingly, this fact alone separates value investing from most other investment philosophies.

True (long-term) growth investors such as Phil Fisher focus solely on the value of the business. They do not concern themselves with the price paid, because they only wish to buy shares in businesses that are truly extraordinary. They believe that the phenomenal growth such businesses will experience over a great many years will allow them to benefit from the wonders of compounding. If the business’ value compounds fast enough, and the stock is held long enough, even a seemingly lofty price will eventually be justified.

Some so-called value investors do consider relative prices. They make decisions based on how the market is valuing other public companies in the same industry and how the market is valuing each dollar of earnings present in all businesses. In other words, they may choose to purchase a stock simply because it appears cheap relative to its peers, or because it is trading at a lower P/E ratio than the general market, even though the P/E ratio may not appear particularly low in absolute or historical terms. Should such an approach be called value investing? I don’t think so. It may be a perfectly valid investment philosophy, but it is a different investment philosophy.

Value investing requires the calculation of an intrinsic value that is independent of the market price. Techniques that are supported solely (or primarily) on an empirical basis are not part of value investing. The tenets set out by Graham and expanded by others (such as Warren Buffett) form the foundation of a logical edifice.

Although there may be empirical support for techniques within value investing, Graham founded a school of thought that is highly logical. Correct reasoning is stressed over verifiable hypotheses; and causal relationships are stressed over correlative relationships. Value investing may be quantitative; but, it is arithmetically quantitative.

There is a clear (and pervasive) distinction between quantitative fields of study that employ calculus and quantitative fields of study that remain purely arithmetical. Value investing treats security analysis as a purely arithmetical field of study. Graham and Buffett were both known for having stronger natural mathematical abilities than most security analysts, and yet both men stated that the use of higher math in security analysis was a mistake. True value investing requires no more than basic math skills.

Contrarian investing is sometimes thought of as a value investing sect. In practice, those who call themselves value investors and those who call themselves contrarian investors tend to buy very similar stocks.

Let’s consider the case of David Dreman, author of “The Contrarian Investor”. David Dreman is known as a contrarian investor. In his case, it is an appropriate label, because of his keen interest in behavioral finance. However, in most cases, the line separating the value investor from the contrarian investor is fuzzy at best. Dreman’s contrarian investing strategies are derived from three measures: price to earnings, price to cash flow, and price to book value. These same measures are closely associated with value investing and especially so-called Graham and Dodd investing (a form of value investing named for Benjamin Graham and David Dodd, the co-authors of “Security Analysis”).

Conclusions

Ultimately, value investing can only be defined as paying less for a stock than its calculated value, where the method used to calculate the value of the stock is truly independent of the stock market. Where the intrinsic value is calculated using an analysis of discounted future cash flows or of asset values, the resulting intrinsic value estimate is independent of the stock market. But, a strategy that is based on simply buying stocks that trade at low price-to-earnings, price-to-book, and price-to-cash flow multiples relative to other stocks is not value investing. Of course, these very strategies have proven quite effective in the past, and will likely continue to work well in the future.

The magic formula devised by Joel Greenblatt is an example of one such effective technique that will often result in portfolios that resemble those constructed by true value investors. However, Joel Greenblatt’s magic formula does not attempt to calculate the value of the stocks purchased.

So, while the magic formula may be effective, it isn’t true value investing. Joel Greenblatt is himself a value investor, because he does calculate the intrinsic value of the stocks he buys. Greenblatt wrote “The Little Book That Beats The Market” for an audience of investors that lacked either the ability or the inclination to value businesses.

You can not be a value investor unless you are willing to calculate business values. To be a value investor, you don’t have to value the business precisely - but, you do have to value the business.



ALBERTO

OngKL asked:


Kicking off the evaluation process is the toughest for us. Question after question kept popping up “Is the property market low enough?”, “Is this property worth considering?”, “Are the numbers the only criteria for investment?” What are we really looking for in real estate investing?? Quick bucks $$ or Regular income…

Bottom-line = Money!!!

Property Agents have tons of recommendations for YOU! How will you know whether they are good investment for you?

There are many factors that need to be considered in evaluating a real estate investment. For example, location, environment/neighborhood, facilities, financing options, rental income, etc. If all above works, it is time calling your agents and set up appointments. Happy Viewings!!!!

Actually it is not difficult and it does not need much of your time to know if a real estate investment is worth investing in the first place. All you need is crunching some numbers with your calculator, and Bingo! You can decide whether the property is worth investing.

Later in this article, we will show you how these numbers work in your prospective real estate investment by two real life cases in Johor Bahru, Malaysia.

Numbering GAME

Numbers, numbers and numbers.. How do you get them?

You may try calling a few property agents, check with banks on properties valuations and of course there is plenty of information on the Internet. Once you have these numbers you can determine if a real estate investment is worth spending your time for a viewing. “Seeing is Believing.” Check out the property to see the actual condition and the environment, whether it is to your liking once you get your numbers RIGHT! Once you get your numbers, you will see:

Incomes

One-time income - selling price

Regular income – rental price

Costs

One-time expenses (startup costs) – down payment, agent’s brokerage, legal fees, stamp duty, furnishing cost, etc.

Regular expenses (monthly costs) – monthly loan repayment, monthly maintenance fee, quit rent, property tax, etc.

See how they (numbers) work..

The basic requirement for a good real estate investment is that the income it generates must be more than its costs.

If the selling price of a real estate investment is more than its purchase price and startup costs, this investment generates capital gain.

If the rental income of a real estate investment is more than its monthly expenses, this investment generates cash flow.

If you are looking for capital gain, the gain or loss depends very much on the real estate market. Hoping to make money from capital gain on real estate is like buying a product and hoping the value of the product will go up with time. On a long term basis, real estate will be appreciating in value because of inflation, but the gain is not guaranteed.

On the other hand, a real estate investment that generates cash flow effectively put money into your pocket every month, while your equity in the real estate investment increases over time. This is the real estate investment that we are looking for – an investment worth investing.

Too good to be true?

With this recession time, you will ask yourself, “Is it the RIGHT time for me to start investing in real estate? Everything is so uncertain NOW.”

In Johor Bahru, you can find plenty of real estate investments worth investing at this juncture. We discovered most of these investments that generate substantial cash flow are mainly apartments or condominiums. You can read from our upcoming article to know why apartments or condominiums are better real estate investments in Johor Bahru. Here are two recent real life cases of real estate investments worth investing in Johor Bahru.

Case 1: We found a condominium in Larkin area of Johor Bahru in Octorber 2008 selling at $160,000 with existing tenant. Monthly rental income is $1400 while monthly maintenance cost is around $300 (maintenance fee plus sinking fund plus quit rent).

If we finance 90% of the purchase price to buy this condominium with interest rate 4.85% with a tenure of 30 years, monthly loan repayment is estimated to be $760. Thus, this condominium is generating a net cash flow of $340 every month, $4080 every year.

Total capital outlay for this investment is $24,000 for down payment including other startup costs like legal fee and brokerage.

Effectively this investment gives us a yearly cash-on-cash return of 18.5%. In other words, within 6 years we would be able to take back our capital $24,000! The best thing is we still own the condominium. It will keep putting money into our pocket every month. We also have the option to sell it away when the market is good.

Case 2: There is a 3-rooms apartment in Tampoi sold at $125,000 in Octorber 2008. Monthly maintenance cost is about $150. If we finance 90% of the purchase price with interest rate 4.85% with a tenure of 30 years, monthly loan repayment is estimated to be $600.

Expected rental income for a fully furnished apartment in the area is about $1200. With furnishing cost of $10,000, total capital required for this investment is around $27,000, while total monthly cost is $750.

The apartment is expected to generate a net cash flow of $450 every month, $5400 every year. Cash-on-cash return on this investment is 20% which we can expect to take back all the capital within 5 years.

Sound interesting right?

Of course, so far we are only talking about numbers. A good real estate investment does not rely on purely numbers. You still have to go and have a look at the building structures, study the location and neighborhood, and perform other checks before you make your decision. What we have discussed, however, can save you time and give you more ideas on the potential returns of a real estate investment before you tell your agent which real estate you want to view in the coming weekend.

Read more about real estate investment tips at http://reijb.com



FELIX

Joe Ficalora asked:


Different Types of Investments:

As we said last time, owning a stock is like owning part of a company. As the company rises or falls in value, so does the price of it’s stock. A key distinction is that the value of the stock is not only driven by the fundamental value of the company, but by other factors as well. These factors may include overall stock market trends, domestic versus foreign trade issues, business sector climate, etc. Owning a bond, is like owning part of a loan to a company or institution, like the State of Texas. Bonds typically pay a fixed amount of dividend as the loan is repaid. The bond’s value is determined by the interest rate on the underlying loan, and the current interest rates and trends in the marketplace. For example, who would not want own a 10% bond right now, when the money markets or bank passbook savings accounts are paying 3%? Should the institution or company fail or default on the loan, you could lose all or most of your bond’s value. Large companies or institutions usually issue bonds; so the risk is greatly reduced over owning a company’s stock share.

A stock mutual fund, is a group of stocks owned by a fund company to achieve certain investment objectives. Likewise a bond mutual fund is a group of bonds held to achieve a certain investment objective. Mutual funds, in both stock and bond types exist in many styles and forms. Fundamentally they are a savvy collection of stocks or bonds assembled and professionally managed for a specific or combination of investment aims. These typically diversify your investments so that no one particular company can sink your entire investment. The converse is that no one single stock can shoot your mutual fund up to a huge return.

Typically each mutual fund focuses upon growth, income, value, large, small or mid-capitalization companies, or a combination of these objectives. There are thousands of different funds and dozens of fund families to choose from. There are also companies that rate mutual funds, like Morningstar (www.morningstar.com ). Some mutual funds use a management team to select and prune stocks in the portfolio, some use certain methods, and some follow the leadership of a single fund manager. You should check these out before investing in a particular fund.

An oft-overlooked mutual fund consideration is the management fee or what are referred to as 12b-1 fees. Most fees are in the range of 1 to 2%. Be wary of any fund outside that range. The United States Securities and Exchange Commission can help unravel some of these issues for you. A good starting point is their investor section on mutual fund performance, specifically www.sec.gov/investor/pubs/mperform.htm . They also have a fund cost calculator to help take into account the fund management fees. Some funds are no-load mutual funds because they do not pay a sales person any commissions for selling fund shares. These are typically lower in cost, and if you own them for a long time, they can make a difference in the net return on your mutual fund investment. Conversely, there are loaded funds, which charge a commission when you invest in their fund. These vary widely in amounts, so ask for exact details before investing. Some require you to pay the sales commissions; others add that to the fund expenses. Either way it’s a cost to you. The Vanguard Funds (www.vanguard.com ) are often mentioned as a leader in creating no-load, low cost mutual funds. You will find compelling arguments at their website for owning no-load funds. You should check carefully on overall fund performance including fees when evaluating fund choices.

Measuring Risk:

Most mutual fund and stock tables and resources will list something called the beta or volatility of the items listed. Beta is a measure of the risk of the security listed associated with variation of the security when compared to the overall stock market. If beta is 1, then the stock or mutual fund varies about the same as the general market index. If less than 1, then the security is less volatile than the general index of comparison, with higher than 1 meaning more risk.

Measuring Risk-adjusted Returns:

There is also parameter called alpha, which is the market-adjusted return of the security. If alpha is positive, then the security earned a higher return than the relative market index of comparison. If alpha is negative, then the security earned less than the market did.

Minimizing Overall Risk:

Risks in the future may be reduced in the present only through preparation, planning and actions!

We discussed preparation and planning for the future in the last Investment Corner, which is a key risk-reduction strategy.

Risk reduction for investing is typically achieved through:

• Diversification,

• Portfolio Allocation,

• Pre-determined buying and selling prices, and

• Adherence to personal investing rules.

Now let’s look at the first part of risk reduction strategy for investing.

Diversification:

Diversification is spreading out your investments across several areas to reduce risk and capture growth in multiple places. Diversification is typically done at several levels. At the uppermost level, we typically diversify investments across different investment vehicles, such as cash, stocks, bonds and real estate. By doing this, we reduce several important risks. Inflation can reduce the value of cash on hand over time, which is why smart folks do not keep their life savings in cash hidden in a mattress! On the other hand, inflation can drive down the value of fixed dividend investments like bonds as well. Real estate may rise or decline with inflation, depending upon the health of both the local and the greater economies. Fixed hard assets like precious metals funds (gold) will usually rise on inflation or fears of inflation. Other risks include stock market declines, individual company bankruptcies, and so on…. By not “placing all the eggs in one basket” we lower our exposure to risks through diversification. During broad stock market declines, many folks move assets from stocks to cash or bonds. And of course the opposite during bull market runs.

Another diversification notion is that of slicing up your investment by specific growth sectors. Within a specific type of investment vehicle, say Mutual Funds, we diversify across the available growth and income sectors. Typically this is large, medium and small companies, as well as high dividend or high growth type stocks. You also could look into diversifying into domestic or international companies such as Asia-Pacific.

At the lower levels of investment diversification are multiple choices within a specific growth target. Most advisors strongly recommend diversification within a stock or bond market holding. If you feel for example that the Internet’s growth will continue or expand soon, buying stock in several companies who offer Internet products would help lower risk of any one company not doing too well. Diversification across several stocks is usually done in simple form through equal partitioning. If for example you had $10,000 to invest, how would you do it? You could place 20% of your total investment amount in each of 5 different Internet stocks as in Table I:

Table I –Stock Investment Diversification

Stock Name Current Price 90 Day High 90 Day Low Amount Invested ~ Shares

Company A $25 $28 $20 $2000 80

Company B $40 $40 $20 $2000 50

Company C $60 $60 $20 $2000 33

Company D $300 $300 $198 $2000 7

Company E $8 $9 $3 $2000 250

By looking at the trading ranges across the 90-day history, you can estimate the risks or volatility of each stock. Do the stocks have the same risks? Do they all have the same growth potential?

One approach would be to allocate risks equally, as opposed to allocating investment equally. You would be to use the information in the range of stock trading prices to assess risk and re-allocate your investments as this diversification calculator shows below in table II:

Table II – Risk Diversification Calculator

Risk Diversification Calculator

Investment Amount $10,000

Stocks 5

Stock_1 Stock_2 Stock_3 Stock_4 Stock_5

90-day Max $28 $40 $60 $300 $9

90-day Min $20 $20 $20 $198 $3

Cur. Price $25 $40 $60 $300 $8

Trade Rnge 32% 50% 67% 41% 100%

Eq. Amt $2,000 $2,000 $2,000 $2,000 $2,000

$$ at Risk $640 $1,000 $1,333 $819 $2,000

Risk Ratio 1 1.5625 2.083 1.28 3.125

Risk-Red. $2,000 $1,280 $960 $1,562 $640

Adj. Inv.$3,104 $1,987 $1,490 $2,425 $993

If you do not want to do the research and monitoring required for several individual stocks or bonds, choosing a mutual fund may be the wisest choice, with a smaller but usually acceptable return on your investment. The key question you need to answer is not “Should I diversify?”, but rather “How will I diversify my investments?”

About YOU

The primary things you should know about yourself before selecting among the different types of investments are:

I. How much of my time is available to monitor/manage my investments?

II. How often do I want to change my investment choices?

III. Do I want help and advice from investment professionals?

These are important questions you need to answer for yourself. All investment requires some time commitments to monitor and manage. When stock markets or life situations begin to change, you may need to change your investment choices. If your experience level does not warrant it, getting professional help may increase both your results and comfort level.

I. Time to manage your investments: Your time is worth money! At least if you can put it to good use in managing your investments… but do not become obsessive with it. Investments take time to grow. Every investment portfolio must be watched and pruned from time to time. You wouldn’t want to look back after 5 years and find that right after your investment choices were made, that the business climate changed and those choices had become poor performers.

Two typical uses of your time applied to investment managing:

• Weekly, monthly or quarterly checking for:

o Stock movements

o Business climate changes,

o Company news

• Annual or quarterly allocation changes

o Re-planning or shifting your plans

o Pruning and re-diversification

o Reallocation of investment amounts

Weekly or Monthly Check-ups

If you buy individual stocks and bonds, these will need monitoring more often than if you had purchased mutual funds. However, stock and bond funds need attention too, just less often.

Some questions you should answer for yourself are:

• Can I afford time each week to check investments (Friday night or Saturday morning)? This is important for individual stocks and bonds.

•Am I disciplined enough to check my investments periodically? This is critically important, as the business environments are constantly changing.

• Can I put this on a monthly calendar and stick with it? Monthly checkups are important no matter what your investments may be…

• If I get an automatic e-mail sent will I read it? Many investment houses will do this for all accounts above a certain size limit. You can pool your investments under one roof, usually with savings in cost plus perks for research, quotes, e-mails, etc. Both Fidelity and Schwab are good examples of these services once you reach certain size limits.

Quarterly or Annual Check-ups

If you are only into mutual funds as investment vehicles, then you need check them only quarterly or annually. After all you are giving up some small amount of income to pay for professionally managed investments, right? You may want to keep up with monthly or weekly news on the investment fund management team, however, as management team shakeups there could cost you. The key thing is disciplined reviews and setting a schedule that you can stick to. Ignorance in this case can be dangerous, so do it together with your spouse or a family member that you trust. As you get good at it, the time required to do these should drop from several hours to perhaps an hour to review all your investments. If you have been keeping tabs on things, it can be shorter still.

“Even if you’re on the right track you will get run over if you just sit there!” - Will Rogers.

II. Changing your investment choices:

The challenge when deciding to change investments is often the emotional content. “We had a return of say 7%, when the broader markets got only 5%”. How did the overall group for your investment vehicle do? Morningstar provides good index comparisons, as do other groups. If your choices did not perform above the class average for 1 or 2 quarters in a row, it’s probably a good idea to consider other alternatives. That may require all the same diligence of researching an investment as you did originally. If you are seriously concerned and need to act quickly, you can always sell and put the proceeds into cash or a money market for a short time while you do the research.

III. Getting help from professionals:

I have often found the larger funds and investment houses to be a plethora of information via the Internet. They have how-to guides, acronym explanations, and in general some great advice. If however, these seem to complex for you, or you would prefer to seek out a single person with whom to deal, then find a Certified Financial Planner. The best ones should be able to provide references, a track record, and a good deal of services all at your doorstep. These services do not come free and can be in the thousands of dollars to set up your initial plans. Be certain to check 3 to 5 references and interview several planners before deciding. Determine what you pay exactly and what you get exactly after your selection is made. Be certain that they are certified, a place to begin is: http://www.cfp.net/ .

Summary

We’ve covered a lot of ground in this topic of stock and bonds versus mutual funds. Primarily remember that individual stocks require more monitoring, but can yield higher returns. The same applies somewhat to individual bonds. Newer investors to these may want to start with mutual funds, Money magazine has an annual issue every February that is very helpful and is usually available at public libraries. Finally remember to lower your risks by diversification, no matter what investments you make. Ask yourself the questions we reviewed about your time commitments and discipline for monitoring as part of the investing process. And of course, read-up on the Internet and some of the books listed below.

Next time – Portfolio Allocation, Pre-determined trigger points, and Personal investing rules …

Self-Study:

Some great resources to continue your journey are located on the web.

Try visiting these sites:

•http://www.greatcompaniesgreatcharts.com/archives/001864.html

•http://www.rightline.net/home/gate_rm.html

•http://www.investorguide.com/stockfaq.html

•http://www.pascoresearch.com/int_alpha.asp

•http://www.stockbook.com/Evaluator/

Or read these well known authors and books:

• William J. O’Neil: How to Make Money in Stocks

• John Boik: Lessons from the Greatest Stock Traders of All Time

• John C. Bogle: Common Sense on Mutual Funds : New Imperatives for the Intelligent Investor

Additional info from this author may be found at http://www.sbtionline.com



IGNACIO

MrBojangles asked:


A private art collector sold a canvas at a 10% loss during a financial depression. She bought it years later at an auction and sold it to a museum for $37,000 more than the auction price.

If the gallery made a 25% profit and the collector made a 39.5% net profit on her original investment, for what price did she originally bought the picture.

BRADLEY

Bill Ross asked:


Creating a goal plan is half the fun of beginning real estate investing. It’s all about starts at the end, when you are beginning a real estate investing remember to begin with the end in mind, as you start down the path to beginning real estate investing. What kind of lifestyle you would like to have, how much time you want to put in, and where and how you want to live. What you would like your real estate investing activities to provide for you, Spend some time thinking about exactly what you want to accomplish. Don’t think only in financial terms. Be specific, and write down your goals. When you can see them clearly in your imagination, you’re well on your way to achieving them.

In real estate investing goal setting step has fail to notice in short interval, this is very unfortunate because taking a few moments to complete this simple task effectively can have a huge impact on your long term results but also on how seriously you are treated by professionals. A great way to describe creative real estate investing is to describe what it is not, here are examples of what it is and isn’t. Real Estate has classified in five types they are Flipping real estate, Probate real estate investing, Virtual real estate investing, Lease option real estate investing: Part I is Lease option real estate investing and Part II is Flipping real estate. Flipping real estate is one of the most used terms in real estate investing. The term flipping real estate means different things to different people depending upon who you are.

Probate real estate: Motivated seller, an unemotional is one of the great benefits of probate real estate investing. This benefit is usually from out of town, but not familiar with the property and therefore not emotionally attached to it. Virtual real estate investing: There is many an elaborate and systematic plan of action such as virtual real estate investing, it is an ideal virtual real estate investing system would allow you to work and never leave your house. For example leads are automatically generated through automated e-mails, websites and direct mail, which are directed to a prerecorded message and or answering service.

Lease option real estate investing Part One: Now a day investing real techniques are accessible which creates multiple rewards by combining techniques. Lease option real estate investing Part Two :If your are beginning real estate investor making money by doubling cash flows is slam dunk. It gives you what ever you wanted.

The most often asked questions by new or aspiring real estate investors have to do with beginning real estate investing. You would want to read this to learn some specifics associated with real estate investing if you are an avid goal setter, if not a frequent goal setter please read on and consider that setting goals which are really a powerful tool. It does have some magic about it, and is critical to you to become successful in real estate investor.



VALENTIN