Investment Losses

Jeffrey Stoffer CFA, CFP asked:


Captain Jack Sparrow in the movie “Pirates of the Caribbean” has been forced ashore by a mutinous crew. We see him stranded on an island drinking rum with his lovely companion beside a fire. They are discussing his ship. “It’s not just a keel, a hull, and a deck and sails. That’s what a ship needs. But what a ship is, what the Black Pearl really is . . . is freedom.”

As an idealistic young investor in the ’80s I felt the same way about the investment of my retirement savings. Those investments represented financial freedom. With the passage of time life gets more complicated; deciphering financial statements and reviewing all the investment options available can leave us bewildered. We may have a sense the ship has run aground. We feel disconnected from the original meaning or purpose of our investments. We aren’t sure if our money is working for us and if it is working in a way that matters to us. How can we get back to basics and recover our sense of direction? What does investing really mean to us personally?

When we invest in stocks or bonds we are essentially investing in business. Let us consider an example of investment in a small local business. A sausage maker is trying to raise half a million dollars to start his business. You may know the chef personally or know of his reputation. You’ve enjoyed his product and respect his passion for and commitment to making a wonderful sausage using the best organic ingredients. A number of people come together to invest in this business. They might lend to the business (becoming bond holders) or provide equity (becoming stockholders.) The investors provide the capital that allows the business to be born.

Think about the importance of these collective investments and the value they bring. Providing all the capital himself could be a huge personal risk for the sausage maker. So the risk is shared among the investors, none of whom assumes a risk that he or she cannot afford. In fact each investor may benefit financially while serving the needs of the community in a delicious way. The act of investing serves an important and critical function in our economy.

On a personal level, you the investor have put your hard-earned money into this project for a variety of reasons, some of which may be pride in being involved with such a high quality product, a belief that people will love the sausage and the expectation that you will receive a good return on your investment. You appreciate the man’s commitment to sustainable practices. You believe in his ability to be a good manager and careful steward of the capital you have placed in his hands.

As with any investment there are risks, but you feel you can understand them. The business may fail after a few years or you might not get the return you had hoped for. You have invested with the sausage maker based on your priorities and values, some of which you share with him. You care about his success not only because you want a good return on your money but also because you love his products. Your life seems richer for having experienced them. The relationship between the business and you as an investor is very tangible and personal.

Investing for our retirement years now seems so far removed from this paradigm. How can investing in a 401k, an IRA or a mutual fund have that kind of meaning? Making choices here is not like investing with the sausage maker. You own stocks and mutual funds. Are the managers of these companies or funds people whom you know and trust? Do you have the same faith in them as you do in the sausage maker? Do you believe that they are making decisions that reflect your priorities and values?

Certainly we care about our investments and realize they are important. They may mean the difference between subsistence and being able to afford to do some of those things we’ve always dreamt about. However, this type of investing is not the same as putting our money with the local guy, whose success we are rooting for.

Investing can start to become more personal by checking in with yourself. Remind yourself why you are investing. What do your investments really mean to you? They may represent financial freedom. Perhaps they are your security or the potential to live your dreams. They may give your children the head start that you never had. Just as you would expect the sausage maker to be a careful steward of the investment you’ve entrusted to him, your first responsibility in investing is to yourself. Your investments are important assets in your life. By making investments more personal you will derive greater satisfaction from them and increase your chances of feeling successful in the process.

How do you create a sense of purpose and meaning in relation to your investments? The very act of investing demonstrates a belief in our country and in our way of life. Your capital is precious and important. How you invest it matters. Investing in promising medical research or a daycare center in a blighted urban area allows you to get a financial return on your money while reinforcing your belief in businesses you feel deserve support. Naturally, you need to balance these two objectives in order to protect and grow your nest egg. Examine each investment by asking, “Is this working for me, and in a way that supports my priorities and vision for the future?”

Investing can be as personal and meaningful as you choose to make it. You are the captain of your ship.



NOAH

Amy Nutt asked:


A Guaranteed Investment Certificate, or GIC is a type of Canadian investment in which the rate of return is guaranteed over a fixed period of time. Guaranteed Investment Certificates are relatively low-risk investments, and thus yield smaller returns than that of stocks, bonds and mutual funds. GIC’s are typically offered by banks or trust companies. These safe and secure Canadian investments earn interest at a fixed rate, variable rate, or based on a market-based index. Many Canadians view Guaranteed Investment Certificates an excellent choice for an investment portfolio that requires a measure of safety.

How do Guaranteed Investment Certificates Work?

With GIC’s, you will invest an amount of money (determined by you) for a period of time that is determined by the specific type of Guaranteed Investment Certificate that you choose. Typically these periods of time vary greatly and can tend to range anywhere from 1 day to 10 years. GIC’s with longer terms will earn more interest than short term ones. When your Guaranteed Investment Certificate reaches the end of its term (otherwise known as ‘maturity,’) you will be able to access not only your initial investment, but the earned interest as well.

Some Canadian Guaranteed Investment Certificates require that the amount of money you invest initially remain ‘locked in’ for a minimum period of time (30 days for example). Other GIC’s will allow you to access your money before the investment matures. There are even Guaranteed Investment Certificates that allow you to add to your initial investment amount by making weekly, biweekly or monthly contributions.

Redeemable vs. Non-redeemable

Guaranteed Investment Certificates can be redeemable or non-redeemable. As aforementioned, there are some GIC’s which allow you to access your cash during the term. This is referred to as ‘redeemable.’ With a redeemable investment, you will be able to withdraw your cash before maturity. Some redeemable GIC’s specify that you will earn less interest if you cash out prior to maturity.

Non-redeemable Guaranteed Investment Certificates do not allow withdrawals before the maturity date. Non-redeemable GIC’s may offer higher interest rates than redeemable ones.

Interest

Guaranteed Investment Certificates in Canada can be offer either fixed or variable interest rates.

Fixed Rate GIC’s

With a fixed rate GIC, your investment will earn interest at a set rate. That is, the interest that your investment earns will be consistent throughout the term of the investment. The benefit of fixed rate GIC’s is that you can predict exactly how much your investment will be worth on the maturity date.

Variable Rate GIC’s

Variable rate Guaranteed Investment Certificates are either linked to the Canadian prime interest rate or to stock-market performance. With interest-rate linked GIC, you are guaranteed that your money will grow, but you will not know at which rate until maturity. With market-linked GIC’s, you can earn more interest if the stock market does well, but your initial investment will be protected either way.

Benefits of GIC’s

The most important benefit offered by this type of investment is safety and security. Your initial investment will be protected. With fixed-rate GIC’s you can also enjoy guaranteed growth and an easy way to project value at maturity. GIC’s are also known to offer excellent interest rates. Finally, GIC’s are typically pretty flexible investments. You can enjoy flexibility in length of term as well as how often you receive payments.

If you live in Canada and are interested in investing your money in a safe instrument, a Guaranteed Investment Certificate may be right for you. To find out more about what is available in your area, visit your local bank.



DEMETRIUS

Graeme H. Patey asked:


Interest in Socially Responsible Investing Increases

Many investors have strong opinions that don’t involve their views on interest rates and stock prices. This might include support for a clean environment or concern for the poor and the disadvantaged – just to mention a few well-known causes.

Increasingly, these investors want their holdings to reflect their social, ethical or religious values. They wish to avoid companies that profit from activities they oppose, and support companies that behave in ways they consider appropriate or responsible. At the same time, however, most investors still want or need to earn a reasonable return on their portfolios.

Socially responsible investing (”SRI”) seeks to reconcile these two objectives by helping investors create diversified portfolios designed to deliver an acceptable level of performance, while at the same time excluding companies that don’t meet the their ethical standards. SRI investing recognizes that corporate responsibility and societal concerns are an important part of many investment decisions—particularly with the world’s increased focus on sustainability and climate change, among others.

SRI investors encourage corporations to improve their practices on environmental, social, and governance issues. You may also hear SRI-like approaches to investing referred to as mission investing, responsible investing, double or triple bottom line investing, ethical investing, sustainable investing, or green investing.

Increasing Interest

Over the last several decades many investors have shown an increased appetite for social investors. The Social Investment Forum, a nonprofit group that promotes socially responsible investing, calculates the total number of assets under professional SRI management rose from $629 billion in 1995 to $2.71 trillion in 2007. In fact, the Forum estimates that one out of every nine dollars under professional management in the US today—or 11% of the $25.1 trillion in total assets under management tracked in Nelson Information’s Directory of Investment Managers—is involved in socially responsible investing.

Why has socially responsible investing gained in popularity? One of the reasons may be that investors posed themselves a question similar to this one: while my number one investment goal will always be to create a properly diversified portfolio based on my personal risk tolerance levels,

how can I also do a bit of good for the environment, for the world or to improve the condition of mankind?

A second reason for SRI’s popularity is that some of the nation’s most prominent institutional investors have increasingly added a social focus to their investment decisions. These institutions, many with significant assets and often with great public, political and media clout, often carry both a big stick and use a loud voice. Some have become well-known advocates for social issues and this is often carried out through their investments in socially-responsible projects. An example is found in the California Public Employees’ Retirement System (CalPERS), one of the world’s largest public pension funds. CalPers recently announced support for the United Nation’s Principles for Responsible Investment, a menu of possible global actions on environmental, social and corporate issues.

A third reason for increased interest in SRI is the simple fact that it’s now much easier to access professionally managed SRI vehicles. Many investment firms have created specific investment processes that exclude companies that, in the investor’s view, focus on non-socially responsible or acceptable activities. Once these decisions have been made, the manager constructs a diversified portfolio within the desired constraints. The goal is to deliver performance consistent with the investor’s return objectives and tolerance for risk.

Structuring investments consistent with social, environmental or ethical objectives offer investors a way to align their portfolios to their own objectives. Please call today, for more information on incorporating a socially responsive component into your investment program.

Graeme H. Patey is a Financial Advisor located in Cleveland, Ohio and may be reached at 216-523-3015 or www.fa.smithbarney.com/graemepatey.

Smith Barney does not provide tax or legal advice, and it is important to consult with a tax or legal advisor before investing.

© 2008 Citigroup Global Markets Inc. Member SIPC. Securities are offered through Citigroup Global Markets Inc. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates, and are used and registered throughout the world. Working WealthSM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. and Citibank are affiliated companies under the common control of Citigroup Inc.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NOT GUARANTEED • MAY LOSE VALUE



DIEGO

Ron Morefield asked:


The stock market has been fairly flat since the beginning of December, and that means its a good time to assess your relationship with your investments.This is a good time to look at your entire relationship with the market. It doesn’t matter whether you trade stocks, options, commodities, or even Forex. It’s a good time for a little self reflection.

The first thing to do is determine what your actual motivation for trading is. What is the reason behind your specific strategy? Maybe your strategy is to hand your money to a major broker like Smith Barney, AG Edwards, Fidelity, or any of the others. Does that mean that your main strategy is to not deal with investing… to just give your money to someone else and let them hopefully make money for you. Maybe your strategy is to put your money with a company like Scottrade, eTrade, or Ameritrade and actually make the trades yourself. Are you doing that for the thrill of winning and losing kind of like Las Vegas? Maybe you do it to have something to impress your friends and co-workers with. It’s importantthat you understand your underlying motivations. The ones beyond the automatic response of wanting to make riches.

With that bit of self analysis under your belt, it’s an excellent time to ensure that your trading mode is in order because the market will not stay flat forever. Now is the time to put together a winning trading methodology. Here are some ideas to help you be ready for the up swing in the market.

No matter why you trade, you’ve got to divorce your emotions from your investing. If you get excited when you win and sink into the pits of depression when you lose, then you will find out that you lose and lose and lose. Really, this emotion-based trading is a lot like a compulsive gambler. So act like an android and get your emotions out of the picture.

Now that you are clear about your motivations and have your emotions out of the picture, decide on your goals for trading. There are a few basic things to think about. How much time are you ready to spend on your investments? How much ROI are you looking for? How much risk will you assume on the money you invest… in other words, how much are you willing to lose? How much are you willing to spend on learning to invest? Come up with a statement of objectives in the form, “I am ready to invest ­­____ dollars and I am looking for a ____ percent annual return on my investment where I spend ____ hours per week/month managing my investments after spending _____ dollars and ______ hours learning how to invest.”

Next you need to do some reality checking on your goals. If you are looking for a risk free investment returning 100% annually, that is not likely to be found. This is also a great time to see how effective the investment techniques you have been using really worked.

Next, come up with your overall investment strategy for moving forward. Are you going to put your money in a bank? Are you going to put some money into guaranteed municipal bonds and some into mutual funds? Get specific about how you intend to reach your objectives.

Before you actually invest a dime, you’ve got to have an investment plan. The investment plan defines when you will actually put your money into an investment and when you will take your money out of an investment. If you are investing in a stock, then this plan will tell you when you should invest in the stock. What value should it be at? What should it’s recent history look like? Does the performance of the stock meet certain technical analysis criteria? Does the company meet some fundamental analysis criteria? Your plan should also tell you when to sell the stock. That tells you the risk you are taking. If you purchase 100 shares of a stock for $50 and are only willing to risk 100 dollars, then you must exit if the stock drops by $1. That’s not a very good plan, but it gets the idea across.

Many people don’t think they need a plan for things like mutual funds or 401K plans with their company. Frankly, those are the people that lost the most between June and December 2008. The plan that you make should get you the results that you seek in terms of ROI and risk. That’s why it’s called a plan.

Successful traders follow their investment plans to the letter… and this is where the android mind comes in. If you prepared your plan correctly, then if you follow it to the letter you will get the results that you seek. It’s really strange though, that most people stop following their plan. The winning technique consists of three steps. Follow the plan, follow the plan, and follow the plan.

After you exit the investment, then you need to do a de-briefing in your own mind. Take a look at what happened, how your plan served your objectives, and what you could have done better. With this simple analytical approach to investing you will be much more successful no matter what your overall investment strategy.



JOHNATHON

Graeme H. Patey asked:


The markets don’t always behave the way we’d like them to: Geopolitical turmoil, natural disasters, interest rates and world events can have a profound effect on market movements. If recent market volatility has you concerned about the economy, you are not alone; this is a confusing time for many investors. Some have decided to stay the course, while others are sitting on the sidelines waiting for the market to rebound. However, since no one can predict how the markets will perform, it’s important to develop an investment strategy that can help you stay on the right track to meeting your long-term financial goals. Here are some strategies that you can implement today, that may help to manage risk during these uncertain times.

Work with a Financial Advisor. There are a lot of do-it-yourself investment resources available to investors today. However, none of those resources can replace the experienced, personal service a Financial Advisor provides. A Financial Advisor can offer an understanding of your complete financial picture, not just your investments. Additionally, in periods of market volatility when you need the most support, a Financial Advisor can provide:

• Access to important decision-making research and information;

• Ongoing monitoring of your investment portfolio, while anticipating your changing needs; and

• A comprehensive market-volatility plan.

Have a plan. Developing a financial plan is one of the best ways to meet your long-term goals. Your plan should also include an action plan to address market volatility, which should be developed well in advance of a turbulent market. Having a market-volatility plan will help you to set realistic goals and appropriately manage your return expectations.

Invest regularly. It may not seem intuitive, but investing regularly—even during market downturns—can help to reduce your overall costs. Dollar cost averaging is one of the best ways to invest regularly, since you’re investing a fixed amount on a fixed schedule, regardless of how the markets perform. Investing regularly can also have intrinsic benefits: It encourages discipline and may also ease the anxiety of daily market fluctuations.

Diversify. If you’ve ever heard the saying, “Don’t put all your eggs in one basket,” then you already have a basic understanding of diversification. Diversifying your portfolio can reduce risk and volatility if the assets have little or no correlation to each other.

Investing in mutual funds is one way to achieve portfolio diversification, since mutual funds are typically a diversified investment. There are also several other ways to diversify and potentially reduce portfolio volatility:

• Within an asset category, such as purchasing different types of mutual funds;

• Among asset categories, such as purchasing stocks and bonds; and

• Outside of the United States, since some markets move opposite to the US stock market.

Put volatility to work for you. Do you think of the glass as half empty or half full? Your perspective can affect the investment decisions you make during market downturns. Investors who view market volatility negatively can make irrational decisions. A down market can be an opportunity for you to build your portfolio and take advantage of lower unit costs.

Stay invested. You are probably anxious during times when the value of your investments has decreased. As a result, you may be tempted to move out of the market, sit on the sidelines and wait for the market to rebound. However, since no one knows how the markets will move, how do you know you’re leaving at the right time? Also, how will you know when it is the right time to get off the sidelines and start investing again?

If you have worked with a Financial Advisor, your investment strategy was developed to help you meet your long-term goals. Timing the market could potentially jeopardize your financial plan—and your future goals.

Be patient. There will always be uncertainty in the markets; market volatility is a natural part of the investment cycle. Although it may take some time, markets do rebound.

In the meantime, call your Financial Advisor to help you develop an action plan for market volatility and continue to focus on your long-term investment goals rather than short-term market moves.

Graeme H. Patey is a Financial Advisor located in Cleveland, Ohio and may be reached at

216-523-3015 or http://fa.smithbarney.com/graemepatey.

Asset allocation and diversification strategies do not guarantee a profit or protect against loss.

A periodic investment plan such as dollar cost averaging does not assure a profit or protect against a loss.

International stocks are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets.

Mutual fund investments are subject to market risk, including the possible loss of principal. They are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges and expenses, and other information regarding the mutual fund and variable annuity contract and its underlying investments, which should be carefully considered before investing. Prospectuses are available through your Financial Advisor or at www.smithbarney.com. Read the prospectus carefully before you invest or send money.

Smith Barney does not provide tax or legal advice, and it is important to consult with a tax or legal advisor before investing.

© 2008 Citigroup Global Markets Inc. Member SIPC. Securities are offered through Citigroup Global Markets Inc. Smith Barney is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates, and are used and registered throughout the world. Working WealthSM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. and Citibank are affiliated companies under the common control of Citigroup Inc.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NOT GUARANTEED • MAY LOSE VALUE



PARKER

Debbie Dragon asked:


It would be hard to develop a strategy to pay off your debt if you had no idea how much debt you had. It’s just as difficult to develop an appropriate investing strategy if you don’t have a reason for investing. Without a purpose, it’s impossible to make decisions about the type of investments you should invest in, and without a goal- how do you measure your level of success?

People invest for a wide variety of reasons. The most common reason people invest is to save for their retirement. Most people want to stop working at a certain age, in order to enjoy the last years of their life without the stress of going to work every day. The only way it’s possible for people who are not independently wealthy (by an inheritance or a business that will operate without the owner’s input, for example) is to have money saved that can be used to pay expenses and entertainment costs once a person retires.

The other common reason why people invest their money is to reach a certain short-term financial goal.

Investing for Short Term Goals

While most people first think of retirement and long term investing when they think of investing, there are many instances when investing also includes short term goals. Buying a new vehicle, going on your dream vacation or purchasing a new home are all examples of short term investment opportunities.

Short term investing requires different strategies than long term investing, which makes understanding your investing purpose all that much more important!

If your idea is to have another income stream to supplement your salary, or to help you purchase items you don’t have the cash saved to buy, your investment portfolio should contain a mix of short and long term investments that pay dividends. It should contain low risk, high yield bonds.

If your investment purpose is to save for a specific purchase- perhaps your dream home or to take a vacation, it helps to know how much the purchase will cost and when you need the money. Armed with that information you can develop a strategy for investing.

Short term investments are known to be more challenging than long term investments, particularly if you’re not starting out with large amounts of money. Short term investments tend to carry higher levels of risk; but they also have the greatest possibilities for high returns.

Investing for Long Term Goals

The earlier you begin investing for retirement, the higher the amount of money you can create. Young investors can take advantage of compound interest, and even choose riskier investments that could result in higher returns because they have so much longer to recover from a loss than a person who is closer to their retirement age.

As you get closer to your retirement years, your long term investing strategy should contain much less risky investments- including bonds and securities, to help minimize your risks for losing your investment. The lower risk investments have lower rates of return, but should steadily increase.

Retirement investment portfolios typically contain a mix of various stocks, bonds, debt securities, index funds and money markets. Company sponsored retirement plans are great, particular those that match your contributions. It helps you build your nest egg a little faster and stretch your own investment dollars further.

As you age and get closer and closer to retirement, you should move your investments into guaranteed investments (like high interest savings accounts that are insured by the FDIC) to preserve your money so you know it’s there when you need it!



ROLAND

Sam Williams asked:


 

Investment in the financial markets, if done in a knowledgeable manner, can yield lucrative levels of return. Such informed investment-making decisions, are not, however, very easy to take. Financial planners, with their professional expertise can help beginners in choosing proper investment policies. Some of the most important tips that financial advisors provide to newbies regarding investment are:

a) At the outset, one needs to realize that there are no set patterns or rules for investment. Investment decisions depend on the circumstances, market conditions and can also change with the risk-tolerance levels of investors,

 

b) The exact working procedure of investment procedures needs to be properly understood before an individual can take investing decisions. All details of investment transactions should be well-understood too,

 

c) Investment targets and desired rates of return need to be laid down at the start itself. This facilitates easy formulation of investment policies, including the amount of money to be invested.

Once the above tips are followed properly, a new investor needs to follow the following broad principles (as advised by most financial planners):

a) Stock Values are more important than Stock Prices à While low-priced stocks are attractive, one needs to examine the cause of the low price levels of any stock. Indeed, in a bullish market, the perpetual low prices of a stock might indicate that the company that is making financial losses,

 

b) Consider the Return On Net Worth à Return on net worth is obtained by dividing after-tax profits by the net worth. Rising levels of return on net worth of a stock make it a suitable channel of investment,

 

c) Risk-diversification à In order to avoid huge losses at any time, one needs to hold a mix of low, medium and high-risk stocks. This diversification of risk helps in protecting the invested amounts,

 

d) Stock-price Analysis à one needs to understand the mechanism via which stock prices are determined. Future market expectations and projections regarding market conditions play a large part in determining stock prices,

 

e) Tax-paying companies à an investor has to understand the financial health of a company before (s) he invests in its stocks. A company that pays high tax levels generally has high levels of profit, and is of sound financial health, compared to those that pay little, or no, taxes. Hence, one should invest in stocks of high tax-paying companies,

 

f) Analysis of the Free Cash Flow à The reported profits of any company can be divided in two parts: Cash actually flowing in the company and alterations in the profit and loss account of a company (via an increase in the number of debtors). While investing, investors should prefer stocks of companies that have greater portions of profits going back in its own reserves,

 

g) Optimization à Often, beginners make the mistake of trying to maximize returns by investing in excessively high-risk stocks. This is uncalled for, and one needs to try to optimize one’s return, by holding a mix of different types of stocks,

 

h) Future prospects of a company à While past performance of a company is extremely important in determining the value of its stocks, what is even more important is its future prospects. The prices of stocks are, more often than not, determined by the future prospects of the company. Such prospects, hence, should be considered more important than past records,

 

i) Investing in equities over time à In order to obtain the best return from equities, one should avoid investing the whole amount at one time. Investments in equities should be done at different suitable times and market conditions.

These tips regarding investment, as suggested by professional financial planners and advisors, should help beginners understand the basics of investment and then, to optimize their expected rates of return.

 

 



GLEN

James Kobzeff asked:


cle covers six dynamite real estate investing tips intended to help anyone just getting started in real estate investing to successfully launch and hit the ground running with real estate investment property.

1. Develop the Correct Attitude

To stand a chance of succeeding at real estate investing, foremost, you must understand that real estate investment is a business, and you will become the CEO of that business.

As your first order of business, then, it’s crucial to develop the correct mind-set about investment real estate and be able to make this distinction between buying a home and investing in real estate:

“You buy a home to live and raise a family; you buy real estate investment property to pay for the home, live comfortably, and raise your family in style”

As one very successful real estate investor said, “Only women are beautiful, what are the numbers?” In other words, you will not succeed at real estate investing until you acknowledge that it’s not curb appeal, amenities, floor plan, or neighborhood that should turn you on or off to the investment opportunity; what counts most is the property’s financial performance.

2. Develop Meaningful Objectives

A meaningful set of (realistic) objectives that frames your investment strategy is one of the most important elements of successful investing. Yes, we may all desire to make millions of dollars from real estate investing, but fantasy is not the same as expressing specific goals and a method on how to achieve it.

Here are some suggestions:

How much cash are you willing to invest comfortably? What rate of return are you hoping to achieve by making the investment in real estate? Are you expecting instant cash flow, looking to make your money when the property is resold, or merely looking to achieve tax shelter benefits? How long are you planning to hold the property before you dispose of it? What amount of your own effort can you afford to contribute to the day-to-day operation of running the property? What net worth are you hoping investing will help you to achieve, and by when would you like to achieve it? What type of income property do you feel most comfortable owning, residential or commercial, or does it matter?

3. Develop Market Research

If you’re new to real estate investing, you undoubtedly know little about investment real estate in your local market. So, do market research to learn as much as you can about income property values, rents, and occupancy rates in your area. The better prepared you are, the more likely you are to recognize a good (or bad) deal when you see it.

Here are some good resources:

(a) The local newspaper, (b) A local appraiser, (c) The county tax assessor, (d) A qualified local real estate professional, (e) A local property management company

4. Run the Numbers

I can’t stress enough the importance of running the property’s cash flow, rates of return, and profitability numbers. Remember, real estate investing is a business, and as the CEO of your investment enterprise, you’ve got to know what you’re buying, especially if you’re trying to determine which of several investment opportunities would be the most profitable.

You have two options:

(a) Invest in real estate investment software. This will enable you to discover for yourself the investment property’s cash flow and rates of return, and create your own analysis reports. Plus, by running the numbers yourself, you gain a broader understanding of real estate investing nuances, and in turn might be less likely to fall victim to the wiles of someone with little concern about how you spend your money.

(b) At the very least, work with a real estate professional that has invested in real estate investment software and can calculate, present, and discuss the property’s financial data with you.

5. Develop a Relationship with a Qualified Real Estate Professional

Working with a qualified real estate professional is a great way for beginners to get started with rental property investing because an astute professional can acquaint you with local market conditions, recommend a property that meets your investing objectives, and discuss strengths and weaknesses about specific property performance.

Here’s a warning, however: Work with a real estate person who understands investment real estate.

Be sure the agent has a firm grip on key financial measures inherent to real estate investing, knows how to measure profitability and rate of return, has the ability to present the data you need to make wise investment decisions, and, most importantly, shows a genuine interest in how you spend your money. The last thing you want to do is to get involved with a real estate agent that would throw you under the bus just to make a commission.

Here’s a good way to interview for an agent. Ask them for the property’s cap rate and then request an APOD. If their response (even to these basics) is to stand there looking at you like a deer into the headlights of a car, find another agent.

6. Start Investing

Hopefully, this has given you some insight into real estate investing, highlighted a few things to make you a more prudent real estate investor, and perhaps alerted you to a couple of things that should be avoided.

Okay, that does it for us, now it’s time for you to get started. Here’s to your success.



AMOS

Howard Platt asked:


Have you ever wondered why you haven’t achieved the financial success you so desire? Do you understand what it takes to reach that elusive destination, financial freedom? Anyone can have the success they desire. I dare you to become financially free.

A good definition of financial independence, by the way, is the control of an income stream sufficient to support your current standard of living.

You do not just fall into financial independence. More than anything else, the secret to real wealth is the mindset of wealth.

So you see, my dare is not really as outrageous as it might sound at first. By accepting the challenge, you are taking the first step to acquiring the mindset of wealth. You must be resolved to the fact that with wealth building, there must be dedication. And I guarantee that the opportunity to become financially independent is waiting for you, but you have to make the decision to go for it.

It’s up to you to take that step across the threshold of opportunity facing you now. It’s a decision you should have no hesitancy for. And when you do, you’re on your way to financial independence.

There are four major hurdles you must jump to become financially independent. I could go into a deep explanation of each step but I will save that for another time, I really want to discuss a powerful investment strategy. But I will briefly outline the four steps to financial independence.

So to get started, lets begin with the first of our skills of wealth building and that is earning. You must understand the two basic components controlling your earning power.

The first of these is our ability to perform our chosen line of work, that is, how well do we do what we do. The second and probably the most important factor controlling our earning power, is the demand in the marketplace for whatever it is we’ve chosen to do.

Second, you must build a financial protection account to cover all your expenses in case of an emergency, such as the loss of your income source. Saving is really the second important skill for acquiring wealth. You must have the discipline to build a protection account that will cover all your living expenses for your family, for a period of a year or two.

The third step in becoming financially independent is to begin an investment program. You want to achieve the highest returns on the money that you have designated for your investment program. Your objective now is to accumulate a mass of capital that will generate sufficient income to support your lifestyle without your having to work.

The fourth step to financial independence is too develop enough investment prowess to earn the extra income that allows you to fill your wants and desires. You have your needs met, but now you want to create the extra income that allows you to become financially free, this is where you can basically satisfy most of all your wants.

There, now that we have the four basic steps to financial freedom. I would like to carry on with the main focus of this article.

But I must make it clear that I had set up multiple Avenues of Income first, to put me in the financial situation that affords me the ability to test the waters of many different financial opportunities.

So, now I would like to discuss a powerful investment strategy. This is an investment strategy that has worked well for me in all types of market conditions. And by no means is this a strategy that I designed. In fact, it’s one that has been used successfully from a time long before the modern market and the stock exchange even existed. It’s called value investing.

Value investing is the best long term strategy for creating wealth that’s ever been devised. The theory behind it all is remarkably simple. You can become a value investor by investing your money only in under-valued assets. You can find under-valued assets in stocks and bonds, real estate or a wide variety of other investment opportunities. But whatever the investment asset may be, value investing boils down to the equivalent of buying dollar bills for pennies.

Now, I am sure you are saying “If it’s really that easy, everyone would be doing it.” I want to assure you easy as it actually is, everyone is not doing it. As with all great ideas in the world, only a few recognize them for what they are, and fewer still then decide to act on them.

Under-valued assets exist for reasons that range from fluctuations in the economy to fluctuations in human emotions.

It’s important to understand, however, that you can always find undervalued assets if you are willing to look for them. And, you don’t have to do this all by yourself. Look for investment professionals who operate investment funds and companies using this strategy. Through study and practice you will learn to accurately assess values as a basis for profitable investment.

Another key mindset of wealth is thinking and acting like a business person as well as an investor. Remember the better business person you are, the better investor you’ll be. And the better investor you become, the better business person you’ll be.

Please also keep in mind that value investing may offer important opportunities to take an active role in creating value in your investments. For example, you might turn an unwanted piece of real estate into an income producing asset, or turn a failing business into a thriving business, or create a new product or service based on a need or want you see in the marketplace.

Another form of value investing is investing in yourself and your abilities. There are many ways of increasing the cash flow into your families finances.

Setting up avenues of income that could hold the possibility of creating a passive and/or residual stream of income. If you take the opportunity to set up another stream of income, you would really be increasing your ability to grow anyone of your other investments. And, there are many ways of creating an extra souse of income that doesn’t consume every spare minute that you have. To the contrary, making such a move in your life would possibly result in you’re having even more free time to do the things you love.

The options are endless. The possibilities of a whole knew future are there for the taking.



GROVER

J.S. Kim asked:


Defined within the realm of the statistical Bell Curve, the long tail would reside in the skinny tail at the borders. The long tail, in regards to goods and services, refers to the evolution away from mainstream offerings towards more niche products and services. With the internet drastically reducing the costs of establishing distribution channels, the ability of entrepreneurs to focus more on the longtail sector to fit their customized needs is gaining increasing appeal.

However, almost no one speaks of the longtail of investing. To me, longtail investment strategies are the strategies that do not heavily rely on fundamental or technical analysis, but exploit other strongly predictive factors to produce not only superior returns to traditional investment strategies but also investment opportunities with far better risk-reward paradigms than those produced by traditional investment strategies. Here are 10 reasons why the longtail of investing is the only way to build wealth.

(1)You will never achieve the level of wealth you desire by handing your money over to a large investment firm.

The vast majority of private investors hand their money to large institutions and allow them to invest their money for them. If this were truly the best way to achieve financial freedom, then almost every one you know would be ecstatic with their financial consultant. Think of how many people you know that absolutely rave about their financial consultant.

The fact that 90% of people you know do not rave about their financial consultant should tell you that niche investment strategies, or longtail investment strategies, are far superior. The ones that are happy with the large investment houses already were independently wealthy before they sought out their help. Think about how many people you know that have ever told you, “I wasn’t wealthy before, but thanks to my investment firm, I am wealthy beyond my dreams now.”

(2)Thanks to evolving information technology, there are many better and more highly predictive means of making investment decisions than just utilizing fundamental and technical analysis.

Though people have been really slow to grasp this, once they do, longtail investment strategies, like those invented by SmartKnowledgeU?, will boom. There is no doubt that the level of top-notch financial, political and corporate information available to the average investor has increased by leaps and bounds within the past decade.

There is a virtual treasure map that was created by the flattening of the world over the past decade to selecting stocks that are poised to explode. However, because the largest, most powerful investment institutions in the world have kept the masses of investors fixated on traditional investment techniques such as value and fundamental analysis, the longtail of investment strategies is currently much further behind in its developmental phases than it should be.

The best analogy I can use when explaining why people have ignored the long tail of investment strategies is to compare it to the incredibly slow adoption of Internet Protocol Version 6 (Ipv6) by the United States. When China started preparing its country for Ipv6 a decade ago, the benefits in increased security and its added value properties in e-commerce were evident even back then. However, people in the U.S. were comfortable with the lesser Ipv4 so did not take any action until the progress and superior internet and business capabilities of China, Korea, Taiwan, and Hong Kong finally embarrassed the U.S. enough to move forward and catch up with Asia.

I see the same thing happening in the educational realm of investing. Everyone is comfortable with the traditional investment strategies that have been propagated for the last several decades so nobody sees a need to move forward even though much better strategies exist today. Just as with Ipv6, the world will eventually realize that the safest and best means of investing money reside in the longtail, and they will eventually adopt these strategies.

(3)With so much investor skepticism of corporate integrity sparked by past accounting scandals at Enron, WorldCom, General Motors and the like, and the current, ongoing backdating option scandals, investors will increasingly seek alternate means of making investment decisions other than crunching numbers that they feel are untrustworthy.

Furthermore, technical analysis often yields false positives as well. A chart will show indexes that appear bullish having just broken through a ceiling of resistance only to have the index turn back downward for a prolonged period of time, or a chart will appear bearish having just broken through a floor of resistance only to turn around and begin another bullish ascent.

In fact, you have seen some of these turnaround trends with some of the technical posts that I’ve placed on my blog in previous months. In fact, that is why I always state that I never rely solely on technical indicators to make my decisions. I rely only on technical indicators to confirm or dispel what my long tail investment strategies tell me. Of the three types of analysis, fundamental, technical and long tail, long tail investment strategies yield by far the least amount of false negatives and false positives. That’s why I rely on them so heavily.

This sentiment will lead to an evolution of longtail investment strategies, and the discovery of more efficient and better predictive means of making investment decisions than even those that already exist. Even current longtail investment strategies, such as those utilized at SmartKnowledgeU? are constantly evolving as access to reliable information increases every year. Making decisions as if you were a fly on the wall of boardrooms is no longer a fantasy. It is possible, thanks to the evolution of the information landscape.

(4)With the growth of blogs and pure information sites on the web, the stranglehold of global investment myths, including the Modern Portfolio Theory of diversification, will soon be exposed for what they are - cleverly disguised sales strategies posing as investment strategies.

Once people realize this, longtail investment strategies will gain wider acceptance, much like acupuncture and herbal medicine eventually gained credibility as healing regimens in the schools of Western medicine.

The new information age has stripped many accepted investment strategies such as diversification of much utility when attempting to build wealth. Furthermore, it has also rendered such beliefs as an inability to time the market and the efficient market model as mere myths. This has been proven time and time again by investment sites such as SmartKnowledgeU? that have called for steep market corrections in certain global markets and in asset classes like gold with consistent accuracy.

(5)Wider acceptance of alternative, longtail investment strategies that far outperform those utilized by global investment firms will happen as word of successes via these strategies spread throughout the world via the internet.

The internet distribution channel can and will be used to change the mindset of investors.

(6)The Do-It-Yourselfers are Growing - With the success of books such as Stephen Covey’s “The Eight Habit” that emphasize personal accountability to achieve excellence versus handing control over to someone else, cultural shifts will happen whereby people will seek to seize control over their own financial future versus just handing their money to a firm to manage.

As this cultural shift happens, multitudes of people will realize that they are shorting their returns significantly every single year by handing their money to global investment houses.

(7)The flattening of the world and accessibility to previously inaccessible investment information will undoubtedly yield an increasing amount of investment strategies that reside in the longtail.

People will realize the foolishness of believing in the one investment strategy thrust upon them by global investment houses for the past half of century as “the only viable and safe way to invest.” If the younger generation takes an interest in investing, adding their creativity to the investment arena will result in explosive growth in the longtail of investment strategies. However, since the odds of this occurrence are quite low, a more gradual shift towards niche investment strategies is much more likely.

(8)The explosion of social networking sites like YouTube, MySpace, Friendster, Squidoo, Digg, and so forth, will amplify the viral marketing of longtail investment concepts.

Again, ignorance of longtail investment strategies causes fear and hesitancy to use them. Viral marketing of longtail investment concepts will increase millions of investors’ comfort level with these different and unique concepts.

(9)People are ultimately interested in returns, no matter how much global investment firms try to separate themselves from their competitors with smoke and mirror service claims.

All the gratitude for luxury box suites at Los Angeles Lakers games, suites at the Four Seasons Hotel, conferences at world-class golf courses and resorts will quickly wither once people realize how much more money they are earning with longtail investment strategies.

(10)Again, because people will readily abandon all the perks they get as a preferred client at a large investment firm for far superior returns on their portfolios, longtail investing will eventually reach a critical mass.

Eventually the longtail of investing will migrate towards the center and become the mainstream methods of investing, though this may take several decades to occur.



LOUIS