I believe that the best way to start investing is with index funds. They’re particularly great for new investors since they take the guesswork out of where you should put your money. After all, an index fund simply mirrors how its respective stock market index behaves; by taking a look at the behavior of the S & P 500, Dow Jones and the Nasdaq index, you’ll have a great idea about how your money will do if you happen to invest in funds that reflect their make up.
Most fund managers will try to beat the index, but unfortunately, too many of them fail. As consumers, it’s reasonable for us to expect to earn a rate of return that matches the index since most experts we entrust our money to simply cannot beat market returns consistently over the long term. If you’re somehow able to manage market returns, then you’re doing much, much better than what most professionals are able to achieve with their managed funds. Now it’s ironic that this is the case since index funds don’t have managers like actively managed mutual funds do. This means that the overall cost of having an index fund is going to be cheaper for you because there is no manager that must be paid.
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When you invest in the stock market, you’ll need to be aware of the investment risks. It’s also quite important to invest with your eyes open: to make sure you do enough due diligence before buying equities and putting your money to work in the stock market. While you are making your money work for you, you’re also exposing it to some risk after all. So tread carefully: do the research needed to pick the right stock investments. Now because there are so many stocks in the stock market universe to choose from, making investment choices can sometimes be rather daunting.
Should You Buy Individual Stocks?
If you do decide to pick individual stocks for your investment portfolio rather than to invest in good mutual funds, then you’ll need to be aware of the process involved in making stock picks. First, you must decide what you want to invest in: are you looking at a specific stock sector or company? There are several factors that you’ll need to look at:
1. Check stock and company performance.
When you’re evaluating a stock, check out its company’s performance in its given industry (or space); and also check on the historical performance of the stock itself. Check the following measures carefully:
- The stock’s P/E ratio (or price to earnings ratio) which tells you just how overvalued or undervalued a stock happens to be.
- The stock’s dividend yield, price-to-book and price-to-sales measures. Higher yields make a stock more attractive.
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In the world of investing, there are all sorts of mutual funds — from index funds, to actively managed — covering the spectrum of size and orientation. Now no one wants to invest in a mutual fund that loses money on a consistent basis or is charging you a lot of bucks for below average market returns. So the question here is, what makes a mutual fund “good”? What makes a fund worth the money that you are going to put into this investment? Here are a few characteristics you’d like to check out when shopping for a mutual fund:
Attributes Of A Good Mutual Fund
1. The fund’s mutual fund manager has a strong reputation.
When you invest in an actively managed mutual fund, you’ve got to check out the guy or gal who’s at the helm. This fund manager’s goal is to outperform the market and to come out on top of the competition. When the fund is a winner, investors tend to pour more money into that fund, possibly chasing returns (or hoping they’d receive the kind of returns expected of a fund with a great performance record).
You’ll know a mutual fund is a great choice if the fund manager controlling and managing it has a great reputation and a good track record. If you read up on some financial publications, these funds are written up front and center as top favorites.
2. The mutual fund has low expenses and low overall costs.
Check whether the mutual fund is a no load and has no 12 B-1 fees. Why bother with loaded funds when you can now own a well performing no load fund that’s so much cheaper to own? Take a look at the expense ratio of the mutual fund. This is what tells you how much it costs each year for you to invest in the fund. Furthermore, you can compare this expense ratio to the cost of other funds.
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The vast majority of investors have their stocks, bonds, and mutual funds through their brokerage accounts. What this means is that the stock broker actually holds assets in behalf of their clients and retains these assets in clients’ accounts. If a broker is not a member of the SIPC (also known as the Securities Investor Protection Corporation), there is virtually no protection in the event that the brokerage goes bankrupt. However, most legitimate brokerage firms are members.
The SIPC is not an agency of the federal government, but a member agency. This means that member brokers pay into it. You will know that a brokerage is a member because all of its signage and ads will include the words, “Member SIPC”. Should there ever be any doubt, you can contact the SIPC by phone or on the web to verify your broker’s membership. Although the SIPC does not guarantee your investment’s value, they will give you some assurance against losing property.
How The SIPC Protects Investors
The SIPC helps most customers of failed brokerage firms who’ve discovered that their assets are missing from their accounts as a direct result of the bankruptcy. The goal here is for clients to recover their missing stocks and bonds, regardless of their actual value. In other words, the number of shares owned will be returned to the customer without respect to the dollar value. But be aware that futures commodities, cash, and investment contracts that are not registered with the U.S. Securities and Exchange Commission are not protected by the SIPC.
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The other day, we covered some Forex trading basics. This time around, we discuss its appeal to traders. But is this something you should try?
In today’s economic climate and falling markets, many may think that Forex trading is not such a good idea. But the mere dynamics of foreign exchange trading has swept across the globe, making the over the counter (OTC) market the most competitive in the world.
The Benefits of Trading In The Forex Market
Let’s take a look at what makes Forex trading so appealing to traders:
Profit.
When trading currencies, you’re basically trading in a falling market. One currency is working against the other so that if one is declining, that means the other is strengthening. For instance, if the Euro is the weaker currency and the US dollar is stronger, then you buy in euros and sell in dollars.
Leverage.
When you leverage, you — as the investor — are putting up only part of the money and using borrowed funds (say, by going on margin), to increase your investment power and potential profit. The use of leverage can work against you though, and lead to great loss as well as gain. There are different types of trading accounts and different leveraging strategies to consider. You must fully understand the dangers of leveraging and how it works in a Forex market before deciding which course of action will work for you. Every investor should take steps to plan a trading and risk management strategy before they start to trade in the foreign exchange market.
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One more reason to start investing: to be able to afford a comfortable retirement!
The term retirement portfolio is a fancy way to refer to a collection of investments designed to provide income for a person’s retirement years. This can include a 401k, IRA, stocks, real estate, and other similar investments. In fact, some people have a small portfolio and don’t even realize it because they have collected funds and assets in piecemeal fashion and never actually organized them into a cohesive portfolio.
Things To Consider When Building Your Retirement Portfolio
#1 Put Your Retirement Plan in Writing
It is important to begin by assessing your expected retirement needs, anticipated lifestyle, and current assets. Before you can adequately evaluate the essential components you will need to build your portfolio, you have to know where you are beginning and what your final goal is. Let’s take a look at the major components that make up a retirement portfolio:
- Pension
- 401k
- IRAs
- Stocks, bonds, mutual funds, certificates of deposit, and treasuries
- Real estate
- Social Security Income
You may well have some of these items in place. So to start out, you need to take a written inventory of what you have in place. This will give you your starting point for your map to retirement freedom.
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Have you heard of financial carnivals before? They’re weekly blog events that allow bloggers to join and share their articles on a particular subject. The articles are “hosted” on a particular site on a given occasion.
This week, I had the chance to join a few carnivals. Here were some of the ones I participated in, as well as some articles that captured my attention!
In the Carnival of Pecuniary Delights, I quite enjoyed The Financial Highway’s 7 money saving tips for a frugal barbecue!
The Carnival of Personal Finance was a great hit, and I found myself enjoying this post from Ask Mr. Credit Card on leveraging card rewards and other rants.
Next was the Carnival of Financial Planning where I found some compelling ideas from PennyJob’s post on reasons for finishing your basement.
Festival of Stocks was my next stop where I caught up with Darwin Finance’s article on knowing the difference between median vs mean.
There were many more wonderful articles from these carnivals, so I strongly encourage you to visit the sites I mentioned here. I’m going to plan to participate in these events each week because I’ve realized that I could kill a few birds with one stone this way: I can get a chance to network with other bloggers, learn more about who’s out in the blogosphere plus learn about finance along the way!
There are lots of uncertainties we face in this world, including the danger of losing our money in ventures that carry some amount of risk. Anyone who’s considered trading and investing in the markets should carefully assess the risks involved with putting one’s money on the line. Achieving investment goals and minimizing your risk of a loss are not necessarily mutually exclusive events — these are not impossible to accomplish, but it all depends on a number of key factors.
What Kind of Investment Risks Should We Be Aware Of?
1. The Economic and Political Climate. The uncertainties that we experience in the current economic climate are often a major factor in how we should be investing our money. Interest rates, inflation, recession, and war can influence our decisions and are some of the things we should consider when making an investment. As stock prices fall and the economy continues to stall, so does our desire to take a chance on investing in the market.
2. Business Conditions. Whether or not you’re buying or selling stocks or participating in Forex trading, you will want to analyze and think about the financial condition of the business or country you’re investing in. When buying stock, you’re considering the” long haul” outcome. But you still want to keep track of the market and business conditions that the company you’re investing in is facing. A slow down in corporate activity could indicate a reason to sell to prevent a substantial risk of losing a good amount of money. In a short-term trade, certain conditions surrounding an investment can change in a matter of days, even hours, so day traders are constantly keeping track of market data and market activity to avoid a possible loss.
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