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Investing Psychology – Know Thyself

admin — Sat, 01 May 2010 00:18:51 +0000

America will continue to be the land of opportunity and regardless of what course our economy takes over the next few years, it’s likely that investment opportunities will be numerous and attractive. Companies driven by the ever increasing advancements in technology will emerge, while older companies, out of necessity, will come forth with new products. One industry or another will enjoy a boom period relative to the rest. And, of course there will be casualties – there always is.

For the astute investor there’s always opportunities to buy investments (stocks, bonds, commodities, mutual funds, etc.) before “the crowd” finds out and it’s already over-valued or to buy a so-called “blue chip” temporarily out of favor, at a depressed price.

In many instances, the differences between great rewards and huge losses are subtle. However, before you can embark anew or jump back into the game you must ask yourself several questions wrapped into one.

They can be lonely questions because only you can answer them. It involves not only how much money you feel comfortable investing but it also takes into account the level of risk you are comfortable with.

First, does your financial condition permit you to invest; second, can you assume the current risk implicit in the markets; and third, is the market a safe place for you to be. Let’s take them one at a time.

Your Financial Position
One point should be made clear at the outset: you don’t have to be wealthy to invest. In the past, insiders have trumped the belief that stock ownership is a rich man’s game but with approximately 50% of american households currently in the market that is no longer the case.

The goals of the small investor is not of enlarging their fortune because clearly they currently don’t have one but to make available some money, however small, for the purpose of growing it over time. Regardless of your income level, investment is possible if three conditions are met:

1. If you are relatively assured of a steady income. Of course, these days nothing is set in stone.
2. If you are meeting your current household expenses and obligations.
3. If you have cash reserves with which to meet unforeseen emergencies. You have to decide how much but I would suggest enough to cover 3 months of living expenses.

Of course, these conditions are simply safeguards due to the inescapable fact that stock prices fluctuate and that your judgment of when to buy, when to sell and how long to hold should never be dictated by outside circumstances. Investment should be undertaken only with funds you can honestly and legitimately earmarked as discretionary.

A reserve also enables you to pick and choose. Whether you have a few hundred or a few thousand lying around should not automatically mean that it’s time to invest it. What’s the hurry? As the professionals say, “The market is always there.” If the trend isn’t to your liking or price’s are over-valued a reserve allows you the luxury of waiting for more favorable conditions.

Finally, a reserve permits investment over a period of time rather than all at once. Some “experts” feel you should back what seems to be a good situation with all the investment funds at your command. Others will warn against greed and advise partial investment to spread the risk.

This article is not the place to discuss the merits of either philosphy. The point is to give yourself the flexibility of moving whatever way “your” judgment dictates.

Your Personal Situation
Your age, health, the number of dependents you support, the kind of job you have, or the type of goals you have set for yourself are just a few of the possible factors that will weigh into your investment decisions. Unfortunately, there is no rule, no prescription, no secret formula to follow.

The story is told of two salesmen who met at the airport. Their conversation went something like this: “How’s business?” asked the first. “Oh, very good,” said the second, “and yours?” “Fine, fine,” said the first. “I got orders for a thousand gross last week. I sell buttons.” “Really,” said the second. “I’ve had one order in the last three years.” “and you call that good?” said the first. “Actually yes,” said the second, “I sell suspension bridges.”

Like the salesmen, the investor must have a clear notion of his goals and expectations and they must realize what is normal and acceptable to someone else might not be what is normal or acceptable to them.

What Kind of Person You Are
Consideration of your investment goals brings up the final point of personal evaluation – You. Very simply because your goals are a reflection of your temperament and personality.

You must go beyond your goals and pin down the traits and characteristics they stem from. Are your goals realistic? How do you regard money? How do you handle it? Are you easy-come, easy-go or do you count pennies? Are decisions involving money difficult for you to make? Are you on top of your budget or always running to keep up?

These are generalized questions and there are no absolute answers. Speculators should stay out of the market, but on the other hand, being a tight-wad is no virtue either. An overly cautious or conservative temperament may not be well-suited to react to the ever changing market conditions and thus miss out on opportunities to sell or buy.

The value in knowing thyself and how you will likely respond in a variety of financial situations is vital. Any personality type can count profits but it requires a certain rigor, a certain fortitude to face up to the adverse situations that investing unveils. If you have a character flaw, losing money will quickly expose it.

In a now famous pronouncement, the elder Morgan stared at a questioner who wanted to know what stock prices would do and he said, “They will fluctuate.” The statement is as pertinent today as it was then. As a result, the question you must ask becomes, “How will I respond when they do?” If you “Know Thyself” you’ll have the answer.

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Investment Formulas – What Purpose Do They Serve?

admin — Tue, 30 Mar 2010 06:11:17 +0000

What exactly does a formula do? A complete detailed explanation can be as vast and complex as each individual investor and is beyond the scope of this article but a brief summary of a formula’s usefulness would include the two primary functions it fulfills.

First, over a full market cycle, it will improve your investment profits without the application of any thought whatsoever on your part. A good thing for most investors, because the less emotion they inject into their investment decisions – the better off they are. Because there are many investors who don’t believe that the market will ever go through a full cycle again – that the direction of the market is in a permanently upward movement, except for temporary, minor dips. It might be worthwhile to point out – without seeming to be pessimistic – that there are some good arguments against an indefinite continuation of bull markets as the past few years have shown.

The second purpose of a formula – apart from the question of profiting from complete market cycles – is to provide a means of profiting from more minor fluctuations. It is undeniable that the market will continue to fluctuate and a formula allows the investor to benefit from these fluctuations by specifying conservative investment policies when the market is relatively high, and more aggressive policies when it is relatively low.

For many, formulas appear rather complicated and so the obvious question that comes to mind is “Can the small investor profitably use them?” and the answer is resounding yes. True, some formulas are so complex that they are unsuitable for most investors but most formulas do not fall into this category. The most widely used formulas today, in fact, are based on extremely simple principles and can be used by anyone with a rough knowledge of elementary school math. Special measures to adapt formulas to the needs of small investors are necessary, at times but it is worth noting that small investors are just as likely to want to improve their profit performance in the market as are the larger investors. And what’s nice about formula’s, is that there is no particular disadvantage in having a small portfolio when using them.

Security or Uncertainty
All investors, both large and small find themselves in the same basic quandary. All would like to be sure of what is going to happen next to their capital and so they are inclined to appreciate the features of fixed-income investments such as, bonds, savings accounts or commercial paper.

In such investments, their capital is guaranteed and so is their interest. On the other hand, there are few opportunities for appreciable profits in these areas and no protection against a decline in the value of the dollar. As a result, many investors / speculators are attracted by the characteristics of common stocks or currency trading or whatever where neither their capital nor their return is guaranteed, but which offer substantially better opportunities for higher profits through capital gains.

How to resolve the dilemma? It is obvious that the great difficulty with all investments is there inherent uncertainty. One workable suggestion for reducing the damage this uncertainty can do has been often made. Simply don’t buy common stocks or other higher risk investments at all. However, most investors tend to regard this idea as, although practical, rather extreme and are reluctant to abandon the possibilities of profit that exist in these investment vehicles.

The formula idea is simply a form of protection against uncertainty. Formulas are designed to allow the investor to profit from the advantages of owning common stocks or other higher risk investment alternatives like currency trading, while providing them with a measure of protection against their handicaps; to give them some of the stability offered by fixed income investments, while not condemning them to a low return on their money. The whole point of formulas is to make the best of both worlds.

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Investment Advice: 3 Steps To Start Investing With Just $100

admin — Thu, 25 Mar 2010 23:57:10 +0000

Investment Advice: 3 Steps To Start Investing With Just $100

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 employers 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. Its important that youre not paying more than $5 per trade, because thats 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.

Getting Started into Forex Trading

admin — Sat, 06 Mar 2010 00:33:47 +0000

Forex, also known simply as the “FX,” is the commonly accepted abbreviation for the over-the-counter foreign exchange market. The forex market is the largest financial market on earth. Forex exists on a 24-hour-a-day global network that spans corporate, banking, and individual interests. There is no central trading floor. Currency is traded around the world and around the clock, with fluctuations responding to speculation on the latest news as it happens. The currency volume on forex is huge, with a daily turnover of in excess of $200 trillion. Most of the world’s forex trading is done via the internet.

The forex was traditionally a playground for the monolithic international banks and substantial corporations. Times have changed, however, and it’s now possible for the small investor to enter the speculative waters of currency trading. Forex trading has become a bit of a craze of late, especially since it is something available to anyone who owns a computer. And anyone who is willing to put in some training time can profit from forex trading. The forex market finds traders from all around the globe monitoring currency fluctuations, not unlike the way a day trader may monitor a stock’s fluctuation on the Dow Jones.

The lion’s share of forex trades involve the major currencies: the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, Swiss Franc, and US Dollar. In forex trading, a trader will pair two types of currency. Currencies are bought and sold simultaneously, for example the US Dollar and the British Pound. As it requires more of one currency to purchase another, that currency loses value. Not unlike stock trading, forex traders try to accumulate currency when it weakens in hopes of selling it when it goes up in value. Forex trading is not unlike the buy low, sell high approach found in stock trading.

The way a trader on the forex market exchange goes about acquiring currency is by giving a bid/ask quote, saying he is willing to buy, for example 1.6 marks per dollar and sell them at 1.625 per dollar. One must be a market trader to have access to this process. So most people who are forex trading on line buy the currency through a bank, where they’ll pay a commission, then have to figure the commission paid to the bank into the calculation of their spread, or profit margin, when they sell it.

Forex trading is not an easy path to riches. And some people have lost considerable money in miscalculating the market. With its increased popularity, on some days the forex market exchange can see more than one trillion dollars exchanged. Packages for teaching a new forex trader how to invest in the market can range in price.

Last but not least, trading successfully is no easy task. It is a process and could take years to achieve the desired results. There are a few things though every trader should take in consideration that could accelerate the process: having a trading system, using money management, education, being aware of psychological issues, discipline to follow your trading system and your trading plan, and others.

Forex, an alternative investment vehicle

admin — Fri, 26 Feb 2010 13:54:47 +0000

Forex (Foreign Currency Exchange Market) has been used by international banks and large investment companies for years to make millions of dollars. However, with easy access to the Internet, it is now possible for anyone to take advantage of this powerful tool and make money the same way large institutions do, even with minimal startup funds at hand.

Even experienced investors seem mystified by Forex and have very little understanding of it. Forex is not much different from the Stock Market, often the same or similar techniques can be used to trade currency as is used to trade stocks and commodities. What make Forex so mysterious is the lack of available information and opportunities of training.

I have listed 10 good reasons why I prefer Forex to the Stock Market or any other investment option and why any individual, or small investor, should look at getting involved with Forex:

1. A 24 hour market. You don’t have to worry about running out of time because the Forex is open 24 hours a day, nearly all week.

2. Huge liquidity. Have you ever got stuck trying to get rid of some stocks or options? With Forex, there are always buyers, thousands of them!

3. No commission on your trading. This is specially important for individuals with small amount of money to invest. When using other investment vehicles the cost of the investment is often prohibitive no matter how attractive the investment itself is. Brokerage and other government fees can easily eat up your profit even before you completed a transaction. With Forex, there are no brokerage, government etc fees involved.

4. Low transaction costs. Typically less than 0.1%!

5. No middleman. The investor is dealing directly with the Market.

6. Instantaneous transactions. Forex is fully computerised and transaction can be completed in as little 2 seconds. The investor does not have to wait for trade confirmation to arrive by email, worst yet, by post. All ‘paper-work’ is in electronic format, easily viewed, search, analysed.

7. Huge leverage yet low margin. Both increase your profit. In most cases leverage of 10:1 to 100:1 is the rule not the exception.

8. Minimal startup requirements. Again very important for individual or small investors. With Forex it is possible to start trading with as little as $300.00 dollars!

9. Easy access to the Market and your accounts, online, 24/7. Since Forex is completely computerised, anyone with Internet access can trade online and easily access their account and trading history. Most trading platforms allow the user to export this information to other third party software for storage, graphing, analysis etc.

10. No insider trading. Because of the way Forex is ‘de-centralised’, it is almost impossible for anyone to fraud the system.

I could go on for ever about Forex, it is an amazing tool for investors and also a very exciting opportunity for individuals. I hope you’ll catch the fever, too.

Wishing you success,
Ference

Forex, an alternative investment vehicle

admin — Thu, 11 Feb 2010 15:43:14 +0000

I have listed 10 good reasons why I prefer Forex to the Stock Market or any other investment option and why any individual, or small investor, should look at getting involved with Forex:

1. A 24 hour market. You don’t have to worry about running out of time because the Forex is open 24 hours a day, nearly all week.

2. Huge liquidity. Have you ever got stuck trying to get rid of some stocks or options? With Forex, there are always buyers, thousands of them!

4. Low transaction costs. Typically less than 0.1%!

5. No middleman. The investor is dealing directly with the Market.

7. Huge leverage yet low margin. Both increase your profit. In most cases leverage of 10:1 to 100:1 is the rule not the exception.

8. Minimal startup requirements. Again very important for individual or small investors. With Forex it is possible to start trading with as little as $300.00 dollars!

10. No insider trading. Because of the way Forex is ‘de-centralised’, it is almost impossible for anyone to fraud the system.

I could go on for ever about Forex, it is an amazing tool for investors and also a very exciting opportunity for individuals. I hope you’ll catch the fever, too.

Wishing you success,
Ference

Find the best investment rates on savings and CD Rates » Small Investor

Investing Psychology – Know Thyself

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