Cast B2007

Archive for the ‘Investment’ Category

It is very important to carefully inspect a property before investing in it. You must check with the nearby residents and localities about the site that you are planning to invest in. Sometimes, doing it all by yourself could be little difficult, and, therefore, you may hire a professional for doing so.

Nonetheless, here are some useful real estate investments tips that will help you.

Remember investing on real estate is a business and like in any business research is the key factor, so it is in the real estate investment too. Comparative analysis is the next step. You should be well aware about the current market trend and the prevailing rates. After doing a detailed comparative analysis, you can appropriately value your property. This is applicable for both renting and selling. The sale price and even the renting amounts are usually similar to that of neighboring properties. The fluctuations will be only because of the various amenities and the condition of the property. Comparative analysis and the valuing of property correctly is the most important step. If you overvalue the property, you may not get more numbers of prospective buyers or tenants; and if in case you undervalue the property, you will strike a loss deal.

If you really want to get yourself into real estate investment, you must have deep knowledge in this field. For this, get some specialized training and involve yourself in matters related investment properties. Your prime objectives should be on fixer-uppers, foreclosures, low down payment properties, starter homes, small apartments and condominiums. Acquire knowledge about the latest tax laws, real estate loans, loan payments, and also cash flow statements among others.

o Determine Your Asset Allocation – This involves matching your investment vehicles with your investment goals. Your investment choices should always be based on your age and level for risk tolerance. The earlier you begin to save and invest the more aggressive you can be in selecting amongst investment vehicles and options.

o Diversify your Portfolio – To maximize your returns, and manage your investment risk at the same time, you should not put all your eggs in one basket. Avoid placing more than 4%-6% of your investments in any one stock, including that of your own employer’s. Real diversification means spreading your money across multiple asset categories including stocks, bonds, real estate as well as investing internationally.

o Invest in Index Funds or No Load Mutual Funds – An index fund is a passively managed fund that seeks to mirror the performance of a particular index (i.e. the Dow, S&P 500, Wilshire 5000, NASDAQ, Russell 2000). These funds are specifically designed to duplicate the performance of the unmanaged market index they are tracking. Management fees of index funds are typically no greater than about 0.50%. A mutual fund is a pool of funds of individual investors that is actively managed by a professional investment manager who buys and sells securities for the fund. Mutual funds have different investment objectives (i.e. growth, value, income) as well as various market capitalization sizes (i.e. small, medium and large cap). Each investor owns a share of the portfolio assets equal to his number of shares in the fund. A no load mutual fund has no sales charges, commission fees or redemption fees associated with the purchase and sale of its shares.

o Use Dollar Cost Averaging to Buy Stocks – This technique involves investing equal dollar amounts of money at regular intervals over a period of time. The result of this practice should be acquiring a greater number of shares when the price is lower and fewer shares when the price is higher thereby achieving an average cost per share which is lower than the average price per share. Dollar cost averaging helps minimize the risk of timing the market and thus having to determine the optimal time to acquire shares.

o Track Your Investment Expenses – You must vigilantly track all the investment expenses and commissions you are paying as they will dramatically impact the overall return on your investments. If you are paying heavy loads (expenses) and high commissions on funds which are performing below their general market counterparts you will want to divest yourself of these investments, using a tax savings strategy, as soon as possible. Stick with no-load funds and low commission investment vehicles.

o Rebalance Your Portfolio – Requires matching your portfolio’s allocation of assets to meet your stated investment objectives after any area of your portfolio has experienced significant growth or contraction. This process goes hand in hand with asset allocation in that once you’ve determined your plan and the percentage you want in various categories of investments, you must rebalance or re-allocate your funds within your portfolio to insure that you are in compliance with your plan. Note that rebalancing your portfolio can be more complicated with your non-tax sheltered accounts as it could generate tax consequences.

o Don’t Obsess About Tracking Your Portfolio – Keep your eye on the prize in the horizon and don’t allow every downward market move to rattle you. It’s far too easy to panic when you’re watching daily, weekly or monthly results. You should be in it for the long haul and not influenced by trends and short term market fluctuations.

o Seek Out Investment and Tax Advice – Don’t shy away from seeking the help of a professional when you need it. It’s easy to understand the hesitation many people have in pursuing a so called expert’s advice. The number of advisors who sell products behind the advice they give can make it confusing to know the true motivation behind a professional’s recommendations. That’s why it’s essential to ask how any advisor is going to be compensated and what the amount of that compensation will be. Tax strategies should figure prominently into your investment planning as you want to balance both your pre-tax and after-tax retirement accounts.

The list below highlights the five most important points or stages that every successful trader or investor needs to go through. I came up with this list after several years of failure and varying degrees of success in the markets. The list is also, in a way, a distillation of the numerous discussions and conversations I have had with fellow traders and market practitioners over the years.

What makes this list unique (if even I say so myself!), is the fact that the principles or steps outlined below, are “market agnostic” – in that the same steps are necessary, regardless of whether one wishes to specialize in equities (stocks/shares), Forex (currencies), fixed income (bonds), commodities etc.

For people new to the financial markets, they invariably need to start at point 1 (or stage1). However, it never seems to surprise me the number of people who I have come across, who have been “trading” for years, yet have no consistent or methodological approach to the business of trading. Hopefully, the list presented below, will help crystallize the salient points required to trade or invest successfully in one’s chosen market.

1. STUDY THE MARKETS

Make sure you know what you are doing, BEFORE entering the markets. Start from the very fundamentals. Ask yourself questions like: Why does this particular market exist exist?, what is its purpose?, who are the key market participants in this market? etc. By asking yourself these basic questions (and answering them), you will gain a deep understanding of why markets behave the way they do. A comprehensive grasp/understanding of this basic knowledge is required before moving to the next stage.

2. CREATE YOUR OWN “THEORIES”

You need to decide whether you want to primarily be a trader or investor. By “primarily”, I mean whether the majority of your transactions will be classified as ‘trades’ (typically held for a few seconds to a week or so), or whether they will be held for for a much longer duration. Although the terms ‘trader’ and ‘investor’ are used interchangeably, traders and investors operate within different investment horizons, and consequently the stimuli (i.e. market events) that trigger their market operations are different. Perhaps unsurprisingly therefore, their research methods also tend to be quite different. You need to decide quite early on, whether you are a trader or an investor. How to determine whether you are ‘naturally’ a trader or investor would be the subject matter for an entire article in itself.

If you wish to be a successful trader, build on the basic knowledge in step1, and add your own observations about price movements and behaviour. If on the other hand, you want to be an investor, build on the basic knowledge in step1 and learn how to read (and interpret) company and industry reports and form a market opinion based on your analysis.

Use whatever tools you deem necessary, to carry out your trading/investment research – be they existing tools, or your own (proprietary) tools/methodology.

As a result of your research, you will come up with “theories” (technically hypotheses) for determining what the market (or a particular tradeable instrument e.g. stock or currency pair) is most likely to do next. These “theories” will form the core of your TRADING STRATEGIES.

3. PAPER TRADE

This is where you get to test the “theories” you created in step/stage 2. Paper trading is a bit like shadow boxing. It certainly makes you fit and strong, but it does not prepare you for the adrenalin rush (fear?) of someone standing in the opposite corner of the ring, waiting to “punch your lights out”. Paper trading has its uses, but it is only the first step along the path in becoming a successful trader or investor. You should only move to the next stage if you have managed to paper trade successfully. Under no circumstances should you enter the markets with a trading strategy that is not profitable (after transaction costs).

4. START SMALL

Once you have managed to get a good system going – (steps 1,2 & 3). You need to open a broker account. You would typically need a few thousand dollars (or local currency equivalent) to open a broker account. Spread betting may be the way to go (if legal in your country of residence), but there are other risks associated with spread betting that I won’t go into here.

Forex broker accounts can typically be opened with much smaller capital than I indicated above. However, there is a rather large element of leverage involved, and there is the small (but non-zero), probability of unlimited losses – if the market gaps through your stops for example. So generally, leveraged accounts are best avoided when you are only just starting out. As I covered in an earlier blogpost on share market trading for beginners, the “safest” instrument for beginners would be to stock indices.

Starting small is the equivalent of “sparring” in a gym. You may take a few knocks, but at least, your sparring partner is not solely bent on knocking you out. So you take a few knocks, live to tell the tale, and hopefully, learn from your mistakes to become a better trader/investor.

5. LEARN AND ADJUST

Learn from your mistakes, constantly see what is working and what is not working, and adjust your strategies and/or trading mentality/psychology accordingly. No one EVER goes beyond this stage. Even the most accomplished traders and investors are at this stage (and will remain at this stage for the rest of their lives).

This is because of the psychological/emotional aspects of trading. Becoming a truly successful trader or investor has an almost spiritual or “Zen” like side to it, as it involves overcoming oneself, and learning to control/manage fear/greed without getting overly attached to a particular outcome.

There is always room for improvement – and the market WILL “put on notice” – anyone who chooses to ignore this rule. As the old saying goes, there are bold new traders and there are old traders, but there are no old bold traders!

There are investors who prefer to invest money in the long-term vehicles that yield returns in the long term (5 years or more). However, some investors are looking for quicker returns. Short-term investments allow investors to gain access to returns sooner. However, one must invest smartly to gain high returns out of such investment options. Although short-term investments yield returns in very short term, it is challenging to find good short-term investments. The biggest advantage of good short-term investments is that it has a high rate of interest for those investors having a need of money in the near future. For some investors, short-term investments act as their retirement income.

Along with good profitability, short-term investments carry high risk. In order to have less risk, investors may have to forgo the high interest rate. Also, if the investors want to withdraw money before term, these options are associated with penalties. However, it can serve to protect the long-term financial goals of investors. An investor must start investing early on in their age. This leads to greater profitability out of the short-term investments and the profits compound with the increasing age of the investor.

Smart short-term investments comprise various steps: researching the investment options well; gathering information on these options from various sources and being well-versed in financial terms; and understanding the purpose of investment well, keeping the financial goals in mind. It is also wise to diversify the investment portfolio to cushion against the risk of the market. This can help the investor to build the investment based on the risk appetite.

The good short-term options to keep money can be the following:

Checking Account:

Putting money in a checking account gives investor the power to withdraw huge amount without any delay.

High-Yielding Online Savings Account:

Many banks have low minimum deposit requirements that provide good interest rates.

4-week T-bills:

Interests from T-bill investments are exempted from taxes and yield good return for investors.

Brokerage Money Market Account:

Short-term money market accounts yield higher returns. An interest rate of about 4.5%, in some cases, makes it a good investment option.

Penny Stocks:

As penny stocks are the stocks of new companies, they are lower priced. When the company grows, this can lead to high returns in the short term.

Money Market:

A good short-term investment option is the money market. It yields higher rates of interest as compared to the saving accounts. During the short period of investment, the interest grows providing benefits for the investor.

Investing in Gold:

Investing in gold and other precious metals is also a smart investing option for investors. These are the stocks that never go out of demand and can yield high returns in the short term.

Mutual Fund:

Another smart option for short-term investment is in mutual funds. Here, the profit rate depends on the fluctuation in the rates during investing, the term of investment, and the selling rate.

Thus, there are many short-term investment options to choose from. However, a smart investor weighs the options against the tolerance for risks and makes wise investment decisions to gain high returns in the short term.

Starting an investment club can be an easy and fun way to learn about investing in stock. Investments clubs provide education to members who want to undertake stock investing. They also enable members to pool their funds together for joint investment.

Here are 7 tips to starting a stock investment club successfully.

1. Learn about stock investment clubs by visiting or joining existing ones. This will give you first hand knowledge of how a club operates. You can also get acquainted by reading books that offer practical guidelines and advice on starting, joining and running an investment club.

2. Talk to others who have been involved in a stock investment club. Chances are they would have some ideas and opinions on how to start a new club. Look for online advice as well.

3. You can advertise your club through local papers or by posting notices at local shops. Ask friends or family to join but be aware that sometimes money matters can cause stress in personal relationships. So, lay out the ground rules ahead of time. Decide on how large or small you want your club to be. Small clubs are more manageable and fewer members come to an agreement more easily. Larger clubs have more money to invest.

4. All stock investment clubs must have proper plan and rules of operation, including how money will be handled and what happens when someone needs to withdraw their money. Make sure there are policies in place for circumstances such as when members wish to quit or when they fail to pay their subscriptions. Working these issues out ahead of time will save lots of stress later on.

5. Get organized. Determine where and where meetings are to be held. Establish roles (president, vice president, secretary and treasurer) and monthly contribution. Most investment clubs are set up in the form of partnership as this is the easiest way to deal with taxes. Complete relevant paperwork relating to business registration, partnership formation and tax. Open a bank or brokerage account. Choosing a discount broker means paying lower commissions. Full service brokers charge higher commissions but can provide some investment advice and guidance.

6. The main aim of a stock investment club is to educate its members. Find investment experts who are willing to speak at your meetings. Have Q&A and discussion sessions for members to interact with the speaker.

7. Setting up a website for your stock investment club can serve useful purposes. Members are kept informed of news, meetings and activities. A forum on the website allows members to ask and answer questions, and stay connected in between meetings.

An investment club can be a great way to learn about investing in stock. Best of all, you don’t need to have massive capital in order to begin investing.

Throughout history, gold has been a highly valued substance. It’s unique properties and relative scarcity caused almost every world culture to use it as a form of money, as well as a way to “store” value. Although it has lost much of its importance as a form of currency, gold investments still provide a great way to protect your money and diversify a portfolio.

Over the past few years, gold prices have been steadily rising. There is a very good chance this trend will continue over the long-term, making it a good idea to put some money into gold investments now. Also, buying gold is a great way to hedge against other investments. Due to uncertainty in the stock market and the value of the US dollar, it’s a good idea to put 10-20% of your money into a hedge fund in order to protect yourself. Gold and silver have always been considered to be among the best forms of hedge investments because they have relatively stable values (due to very small changes in supply).

How to Invest in Gold

Before you buy gold, it’s a good idea to get the help of an investment consultant. This is especially true if you’ve never invested in gold before. He or she can help you determine the best moves to make based on your own personal financial goals and risk tolerance. If you already have a personal financial adviser, tell him or her that you’d like to use gold to hedge your portfolio. If he or she doesn’t have much experience dealing in gold investments you may want to find someone who does.

If you’re interested in profiting from the price movements of gold, buying gold bullion coins are an excellent option. The best choices are the American Eagle, the Canadian Maple Leaf, the Britannia, and the Australian Nugget coins. You can buy gold bullion coins from precious metal and coin dealers, both offline and online.

Before making a gold bullion purchase, always shop around for the best prices, as the markup on coins will vary from dealer to dealer. Also, do everything possible to make sure the dealer you’re buying from has been in business for awhile and has a good reputation. If possible preserve your gold coins in the original mint packaging and protect them from scratches to maximize resale value.

Gold bars are another gold investment option you may want to look into. Smaller bars are usually more expensive (per ounce) than large bars but are often easier to sell. In general, bars carry a higher price premium than coins. As with gold bullion coins, only buy and trade with reputable dealers.