Thursday, January 27, 2005

Types of Investments

Learn How Different Types of Investments Can Give You More Money and the Time To Spend It As You Wish!

Here's a quick guide to some of the investment options available to you:

Savings Accounts
Such accounts are a good place to store your emergency funds. They are generally insured by the FDIC up to $100,000 for all deposits at one institution and provide easy access to your money. The chief drawback is that interest rates tend to be low.

Money Market Deposit Accounts
These accounts usually earn slightly higher interest than a savings account but still allow easy access to your money. Some banks and financial institutions require an initial deposit of $1,000 or more and limit the number of withdrawals or transfers you can make during a given period of time.

CDs (Certificates of Deposit)
CDs usually earn more interest than a savings account and are a very low-risk financial vehicle. They are generally insured up to $100,000 by the FDIC for all deposits at one institution. You agree to keep your money on deposit for a fixed period of time. Usually, the longer the term, the higher the interest rate. There may be penalties for early withdrawal.

When you buy stocks, you acquire shares of a company’s assets. If the company does well, you may receive periodic dividends and/or be able to sell your stock at a profit. If the company does poorly, the stock price may fall and you could lose some or all of the money you invested.

When you purchase a bond, you are essentially loaning money to a corporation, the U.S. government or a local government for a certain period of time, called a term. The bond certificate promises that the issuing entity will repay you on a specified date with a fixed rate of interest. Bond terms can range from a few months to 30 years. Bonds are generally considered a safer investment than stocks because bondholders are paid before stockholders if a company becomes insolvent. Independent bond-rating agencies such as Standard & Poor’s and Moody’s rate the likelihood that any given bond will default. You can find bond ratings in each agency’s publications at your local library. Although there are no penalties for selling a bond before the end of its term, the value of the bond is subject to interest rate fluctuations. If interest rates have risen since you bought your bond, you may have to sell it at less than face value. It is also possible that the bond’s yield will turn out to be less than the rate of inflation. Some of the bonds available include: Savings bonds, Treasury bills (commonly called T-bills) and other securities issued by the U.S. government.

Zero coupon bonds, which are similar to savings bonds. No periodic payments of interest are made. The bonds are bought at a discount and are worth their face value upon maturity.
Municipal bonds (munis), which are sold by states, cities and other local governments. They are often tax exempt, which means you will pay no taxes on the interest earned.
Insured bonds, which are less risky but generally pay lower interest rates because of the protection.
Convertible bonds, which can be converted into stock.
High-yield bonds, commonly referred to as junk bonds, which are issued by corporations or governments with low ratings. They are very risky.

Mutual Funds
A mutual fund is generally a professionally managed pool of money from a group of investors. A mutual fund manager invests your funds in securities, including stocks and bonds, money market instruments or some combination and decides the best time to buy and sell. By pooling your resources with other investors in a mutual fund, you can diversify even a small investment over a wide spectrum, which should reduce risk. There are many types of mutual funds with varying degrees of risk. Most mutual funds charge fees, and you often pay income tax on your profits. Tax rules can be complicated, requiring professional advice.

Annuities may be deferred or immediate. Both are financial contracts you make with an insurance company. However, a deferred annuity helps you accumulate money for retirement, while an immediate annuity provides you with a steady stream of retirement income in return for your money. With a deferred annuity you put money in, and over time it accrues income and interest. The payout occurs at some later date, when you receive a steady stream of payments to supplement your other income. The contributions you make to a non-qualified annuity are not tax-deductible. Contributions to a qualified annuity that is funding an IRA, 401(k), 403(b) or other qualified plan may be before tax or tax deductible. However, taxes on the earnings in the annuity are deferred until you begin receiving payments. Because annuities are generally administered by insurance companies, they can be set up to include life insurance benefits, such as a death benefit to a surviving spouse.

Immediate annuities are usually purchased with one lump sum payment and then begin an immediate payout. You receive payment on a monthly or other regular basis, giving you needed income. You can generally choose to have the payouts guaranteed by the issuer for as long as you live or choose from a number of other payment options. Both deferred and immediate annuities can be either fixed or variable. The issuer of a fixed annuity guarantees a fixed rate of interest (deferred) or a fixed payment (immediate). Although you are protected from any downturn in the market, you won’t benefit from any upswings. A variable annuity can earn a flexible rate (deferred) or pay a variable payment (immediate) depending on the performance of the underlying investment options you choose. Variable annuities are designed to accumulate money or provide an income stream that hopefully will rise over time to keep pace with inflation. However, there is some risk involved if the market does poorly during the time your money is invested. Annuities can be a complicated investment, so discuss them with a qualified financial advisor to make sure you understand all the options and make the smartest decisions for your financial needs.

Your Home
Your home may be the largest investment you will make during your lifetime. The market value of your home is determined by such things as its condition, the neighborhood, school districts, square footage of the house and house style.

Saturday, January 22, 2005

A Remedial Course in Investing Money Wealth Investing Knowledge Goals Plan Action Success Cashflow101

(ARA) - Was it really just a year ago that we were all running around trying to prevent computers from coming to a grinding halt on the first of January, and speculating about civil unrest and traffic jams around the globe? Time flies, even if the ensuing year hasn't been much fun for investors. In hindsight, I'd say the real Year 2000 Bug was the gut-wrenching flu that struck the stock market, bringing a big dose of reality back into the picture. For those of us who have participated in the investment arena for more than just the past couple of years, 2000 will likely go down as "not unprecedented and long overdue." For the investors who have come to the party more recently, it was a brutal, eye-opening, and sobering experience. Buying every dip didn't work. Dot-com IPOs didn't work. This year was truly a coming-of-age experience for millions of "adolescent" investors. Those willing to stay the course benefited from a number of important lessons. In the style of that famous late-night talk-show host, here are the "Top 10 Things We Learned about Investing during the Year 2000."

Lesson Number 10: Yes, Virginia, There is a Wealth Effect
I get frustrated when strategists point out that there's little correlation between what the stock market does and how optimistic consumers feel. Virtually everyone is involved in the market -- at least tangentially. And it's only natural to think twice about every purchase you make when the value of your investment portfolio is declining by double-digit amounts. Just ask the folks whose loans are tied to severely under-water stock options: Negative debt positions have a funny way of curbing spending.

Lesson Number 9: Rapidly Rising Markets Make Questionable Stocks Look Like Good Investments
This is similar to the fact that floodwaters make a lot of things float that aren't actually boats. In a heady environment, the quest for the quick buck rapidly overtakes common sense, and companies with questionable business plans get funding (from venture capitalists) and attention (from analysts hoping for investment-banking business). Just because someone is willing to fund it or follow it doesn't make it a legitimate business plan or a viable long-term investment.

Lesson Number 8: Dot-Coms as an Asset Class Crashed; Dot-Coms as Businesses Didn't
By some estimates, 95 percent of the pure Internet companies that went public in the past couple of years eventually will fail. Many already have done so -- with a lot less fanfare than when they were offered. Nonetheless, their very existence scared the daylights out of many "old-line" businesses, which quickly responded with their wherewithal, existing infrastructure, and newly energized management. These "new Old Economy" players are now wiser, stronger, and more nimble thanks to the brief threat from on-line competitors. I'm sure it's sweet justice for them to have the employees who jumped shop for greener pastures come running back -- even as the stocks of dot-com competitors fade faster than Fourth of July fireworks.

Lesson Number 7: Investing isn't for Wimps
Gambling (read "day trading, IPO flipping, buying on hot tips, et cetera") is best done in casinos. Even though the economy, technology, and the world political scene all change, certain basic rules don't. To be a lasting entity, a company has to make a profit at some point. Another way to look at it is that in an economy growing at 3 percent or even 7 percent, most companies can't grow at 30 percent or more for an extended period of time. Investing requires thought, not hot tips. It requires thorough research, not direct-from-the-management PR.

Lesson Number 6: Leverage and Volatility are a lot More Fun on the Upside
For five years prior to 2000, both the stock and bond markets basically went up, as the best of investment environments -- improving productivity, declining interest rates, stable political environment -- kept getting better. "Volatility" was great, because it really only went up. While a lot of folks suspected things were going too far in one direction, it was too exhilarating a ride to disembark. The flip side of volatility became painfully obvious as 2000 dragged on, however, and many high fliers plummeted from triple digits to double digits. . . and then on into single digits.

Lesson Number 5: "Asset Allocation" isn't such a Nasty Phrase After All
Our reacquaintance with the dark side of volatility and leverage introduced many all-equity cowboys and cowgirls to the concept that owning a few bonds, some real estate, or (shock of all shocks) a higher cash position might not be such a bad idea after all. A little stability in one's portfolio might, in fact, allow a day or two of rest for the Tums bottle.

Lesson Number 4: Even if Your Statement Shows a Gain, the Money isn't Yours to Keep
This was perhaps one of the toughest lessons to learn, as we all became mesmerized by our steadily rising brokerage account balances. Yet the reality of investing is that until you convert some of the asset to cash, the gain is not truly yours to keep. (And even the process of conversion means giving up some of your gain to the IRS and inflation.) The bottom line is that whether you convert assets or let them ride, the stock market doesn't "owe" you the 20 percent or 30 percent annual gains to which many of us became accustomed. The long-term average is still closer to 8 percent or 10 percent.

Lesson Number 3: Time and Rest are the Best Cures for the Flu
As painful as it was, we hope last year will prove to have been a beneficial rest period in an overall upwardly biased market. It has been useful for wringing out some of the speculative excesses spawned by hedge funds, venture capitalists, day traders, newcomers, and leveraged participants. Last year forced all players to re-examine their strategies and focus on thorough analysis. In the meantime, the economy has been healthy. Corporate America has become even stronger and more competitive. And valuations have retreated to more comfortable levels -- all of which leaves stocks well-positioned for the coming years.

Lesson Number 2: When the Going Gets Tough, the Tough Stay Put
Despite the frustrating nature of 2000, it still wasn't worthwhile to jump in and out of the market. Many studies (and even more war stories from market vets) will attest to the fact that no one can successfully pick tops and bottoms. If you want to fully participate when the market starts to move, you have to be in place already. If your analysis has been patient and thorough, you will be positioned in the companies that are likely to lift off first.

Lesson Number 1: Fear and Greed Still Rule the Roost
Since the earliest days of American trading under the old buttonwood tree, these two emotions have ruled investors' actions. That's true despite the attempts of business-school professors to prove that some scientific system guide investors' choices. It's been a long time since we've seen widespread fear, but it's somewhat reassuring to know that the more things change, the more the basics of investing stay the same.

Monday, January 17, 2005

Day Trading – The Ultimate Work-From-Home Job?

Ever dreamt of giving up the daily grind? Want to strike out on your own and work from home, but don’t know what you could possibly do to make a living? Full time Nasdaq trader Harvey Walsh wondered just that, and now he asks "Is day trading the ultimate work from home job?"

We’ve probably all had the same thought at some time or another, as we trudge off towards another day at work – the same work we’ve been doing day in day out for years – “surely there has to be a better way?” Slaving away to make somebody else rich just doesn’t seem right somehow, but what alternative? Setting up a new business, or buying an established one, are both expensive and risky prospects. So how can the disenchanted employee ever hope to make the switch from wage-slave to total independence?

Those are thoughts I had almost every day, before I quit the safety of full time employment and decided to strike out on my own. I asked myself the same question day in and day out; surely there has to be a better way. What about the internet, I wondered, isn’t that supposed to be bringing new and exciting opportunities to all? I researched a lot of so-called work-from-home opportunities that promised untold riches, apparently mine for the taking just by sitting in front of my PC. Needless to say, in reality those schemes turned out to be about as fulfilling as, well, filling envelopes for a living. No, I knew there had to be another way – something real – something where I could be in control of my own destiny.

And then one morning on the train to work, I read about a couple of Wall Street boys who had struck it rich thanks to some huge bonuses, and were now going it alone setting up their own day trading shop. That was when I discovered day trading, and I realised that this was exactly the opportunity I had been searching for. I decided there and then that I was going to make a full time living from the stock markets, whatever it took to succeed.

The advantages of day trading as a job are numerous to say the least; there is no boss to answer to, no customers to satisfy, no suppliers to let you down, no waiting for invoices to be paid, I could go on. In fact, I will: trading is a location-independent activity – I can work from anywhere with an internet connection, which effectively means anywhere in the world with a telephone line. I regularly trade from my laptop whilst travelling. I can trade when I feel like it, and take time off when I like, which means I can spend quality time with my family.

Now let’s get this straight, trading can be a risky activity, there is no doubt about that. So is driving a car to work, but the risks of getting from A to B on four wheels are well understood and are managed accordingly, to the point where we don’t think twice about getting behind the wheel. And in the same way, provided a trader is disciplined in their approach to the job at hand, and understands the associated risks of the work, so those risks can be managed.

On the subject of risk, day trading is almost unique in that it can be learnt and practised with absolutely no financial risk at all, by means of paper-trading – that is - trading using freely available simulation software. Thus in the same way a trainee airline pilot won’t be let loose into the skies without having learnt and rehearsed their skills in a simulator, so a new trader can employ the same technique before they start trading real money. I “sim-traded” before I gave up the day-job; it made it easy to leave the safety-net of a monthly pay check knowing from my simulated trading sessions that I could already make money in the markets.

And that brings me to the most satisfying aspect of trading for a living; money. On an average day trading the Nasdaq, it is not unusual to make more money in a couple of hours than I used to make in a whole month working full time as a wage-slave. There are bad days of course, days where things just don’t work out, but they pale into insignificance over the course of a week or a month. It certainly took some intensive studying and a lot of practise before becoming a consistently profitable trader. But the end result of that hard work is an immensely valuable life skill that nobody can take away, and which allows for incredible freedom.

Since I first started trading, the learning curve has become even easier for the aspiring day trader, with a multitude of new websites, training courses, and books all covering the subject. I envy anyone starting out in this business today – they certainly have many more learning aids available to them than I had at the same point in my own career.

So is day trading the ultimate work-from-home job? No. I firmly believe it’s the ultimate work-from ANYWHERE job!

Thursday, January 13, 2005

CAN SLIM Investment Stock Selection Method

What is CAN SLIM™?

CAN SLIM is IBD's acronym for the seven common characteristics all great performing stocks have before they make their biggest gains. You can significantly reduce your risk and increase returns by using the CAN SLIM Investment Research Tool as a fact-based performance checklist to evaluate a stock before you buy.

C = Current earnings per share should be up 25% or more and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters. Learn more...

A = Annual earnings should be up 25% or more in each of the last three years. Annual return on equity should be 17% or more. Learn more...

N = A company should have a new product or service that's fueling earnings growth. The stock should be emerging from a proper chart pattern and about to make a new high in price. Learn more...

S = Supply and demand. Shares outstanding can be large or small, but trading volume should be big as the stock price increases. Learn more...

L = Leader or laggard? Buy the leading stock in a leading industry. A stock's Relative Price Strength Rating should be 80 or higher. Learn more...

I = Institutional sponsorship should be increasing. Invest in stocks showing increasing ownership by mutual funds in recent quarters. IBD's Accumulation/Distribution Rating gauges mutual fund activity in a stock. Learn more...

M = The market indexes, the Dow, S&P 500 and Nasdaq, should be in a confirmed up trend since three out of four stocks follow the market's overall trend.

Monday, January 10, 2005

Aggressive Wealth Building Strategies

Starting with nothing, can you really become a millionaire over the next 15 years through an aggressive alternative investment strategy? The compound calculator says yes, but what are your chances of actually being able to realize the returns needed to achieve those final results? The answer depends on your current financial situation, your willingness and ability to stick with an aggressive investment plan, and the quality of the alternative investment vehicles that you choose.

For example, if you start investing $300 every month today into certain aggressive alternative investments that return an average of 60% annually, you will have accumulated well over $2 million in 10 years time. Yet, this is a poor financial plan which is unrealistic for several reasons - not the least of which is that you will be taking too high of a risk with too much money in the later years in order to generate that kind of overall return. However, this is a great way to start, and if you are careful about the investment vehicles you choose you can certainly obtain that return within an acceptable risk profile. My suggestion is to go three years at this "level" in your plan, at which point you'll have accumulated about $30,000.

Now that you are ready for the next level, you are going to want to reduce your risk profile and put that $30K into better quality vehicles ~ which invariably means lower returns. Continue to make that $300 monthly spend to your portfolio. With a 30% average annual return, you'll have amassed over $1,450,000 in an additional 12 years time, or 15 years total. Of course, this figure assumes that you didn't have to remove any funds to pay taxes with ~ and that's a big assumption! For that reason, you should structure as much of your portfolio in non-taxable growth entities as possible, including: IRA's, IRA rollovers, certain variable annuities, or properly structured offshore accounts. (A good example is the American Skandia variable annuity which allows swing-trading the Profunds mutual funds within the account).

So what types of investment vehicles am I talking about? Aggressive trading accounts (either managed accounts or self-traded using a good signal service), private equity arrangements in small businesses, pooled venture capital funds, and other interesting opportunities that come your way. Realize that your choices in the beginning, when you have only a few hundred dollars to start with, are going to be quite limited as compared to when you are ready to move to the next level. But you still need to insist on only top- quality opportunities. Playing pyramid games or being duped into a ponzi scheme will only make you have to start over again.

To be successful, you must avoid the pitfalls of the online investing community. Stay away from anonymous e-currency investments that you can't verify. Do not place money in too-good-too-be-true offers. Insist on knowing who your financial partners are and demand credentials along with a verifiable performance history of any trading account. Do not become the victim of con-artists or unskilled money managers/advisors. Avoid affiliate marketers, degenerate gamblers who want to gamble with your money, and anyone that you heard breached someone's trust in the past. Put the odds in your favor by only doing business with honest, reputable, real people whom have nothing to hide and whose operation makes sense. Make a plan that you can stick to. Stick to your plan. Choose your investment accounts wisely. Do these things and your aggressive wealth building strategy will have an excellent chance of success!

Tuesday, January 04, 2005

Five Ways to Use Money

If you think about it, there are really only five things you can do with money:

earn it
spend it
save it
invest it
give it

That may sound simple. But when it comes to actually doing it, all sorts of questions arise, such as:

“How much money do I need to earn?”
“How much should I save?”
“How much should I spend?”
“Where should I invest it?”
“How much should I give?”
The following Scriptures and advice will help you to begin thinking through these issues:

Most people have to earn an income some way or another. Some people do this by working at a job, others own their own business, and still others earn their living through more unconventional means, such as investing in real estate or the stock market. Whichever way you earn your money, a key decision in this area is determining how much money you actually need to survive.

Many people fall into the trap of working more than they need to, simply because they can’t say no to the extra money. They put in overtime at work, thus depriving themselves, their family, their friends, their church, and their community of time they could spend investing in other types of capital, such as social and spiritual capital. Other people don’t work enough, thus depriving their family of the things they need and enjoy and causing others to have to pick up the slack. The key is to find the balance so you are able to earn a comfortable living without falling prey to the pitfalls of either extreme. Ask God to guide you in this area.

The first rule of spending is to always spend less than you earn. The minute you start spending more than you’re taking in, you incur what is called negative margin or deficit. Deficit is different from a loan in that deficit adds continually to your debt and are unable to pay it back. As you keep overspending each month, your debt just keeps growing and growing. Before long, you and your entire family will become a slave to it
(Proverbs 22:7; 23:4-5).

The way to avoid debt and live within your means is to create a monthly budget with different categories for things like shelter, food, clothing, transportation, and so on. A financial planner can help you develop a budget that’s right for you. But simply creating a budget won’t solve your financial problems. You have to stick to it. Be disciplined. When the money is gone from a certain category, that’s it until next month. Don’t borrow against your future, because the future is always uncertain.

If you’re already in debt, you’ll have to take this into consideration when you create your budget. There are plenty of actions you can take to reduce your debt, such as using some of your margin to pay it off, paying off your high interest loans first, consolidating all of your loans into a single, low interest, monthly payment, cutting back to a single credit card and paying off the balance at the end of each month, and simply learning how to delay gratification so you don’t get into this mess again. Once again, a financial planner can help you work through these options.

It seems like incurring some debt is inevitable today, especially when it comes to purchasing costly items such as vehicles or a home. But it’s not always necessary, particularly for expendables, such as furniture, appliances, or electronic equipment. However, before you incur any debt of any size, spend time in prayer and evaluate the spiritual, economic, psychological and personal ramifications of that decision. If you stick to doing things on a cash-only basis, you may have to wait a little longer to purchase what you want, but it will definitely be worth it in the long run.

A final area of spending we should mention is taxes (cf. Luke 20:25; Romans 13:7). In this case, you need to strike a balance between your civic duty and paying more than you need to. Cheating on your tax return seems like a victimless crime, and it’s easy to let your ethics slide in this area. But honesty is crucial to everything you do—particularly in the little things. So be honest on your tax return, but don’t pay more than you have to. A good steward endeavours to reduce taxes as much as is legally possible. Studies have shown that a dollar in hand of an individual consumer is much more effective than it is in hands of government. So by reducing your taxes, you’re actually helping out the economy! Plus, you can use the money you receive from your tax return for other things, such as reducing your debt or adding to your giving or savings budgets.

The extra money you have left over (or should have left over) at the end of each month after paying your living expenses, taxes, debts, and meeting your giving budget is called savings or margin. Your savings should always be planned and regular. Determine what percentage of your income you can save each month, and then divide that amount into short-term and long-term savings. Use the short-term savings for things like family vacations and acquiring smaller items, such as a stereo or new appliances. Long-term savings should be set aside for a new vehicle or other expendables that require a significant amount of funds. You should also set aside a contingency fund, usually 3-6 months of income, in the event that you temporarily lose your ability to earn income.

While saving money is prudent and wise, there is a fine line between saving and hoarding. A good way to tell the difference is to ask yourself whether you’re putting your trust in your savings or in God. As your savings account grows, make sure your faith in God’s provision grows along with it!

Investing your money wisely is crucial to getting the most return on your time and effort. After all, you’ve worked hard for your money. Isn’t it time it did some work for you?

Investing is just like any other financial decision. First, you should pray and ask God how much he wants you to invest and where he wants you to put it. Any financial planner will tell you that your portfolio should contain a mix of low, medium, and high-risk investments. How much is allocated to each area depends on your risk tolerance and your financial goals. Areas to invest include government bonds, GICs, real estate, mutual funds, and individual stocks. We strongly urge you to consult with a financial planner prior to making any major decisions in this area. The last thing you want to do after earning your money is to watch it all drain away through a poor investment strategy.

As with saving, your giving should always be planned and regular. Choose your charities wisely, and make sure they’re putting as much of your money as possible into their primary work rather than miring it all in overhead. It’s also okay to keep some money aside in a contingency fund for those “spur of the moment” donations. However, regular giving allows you to budget from month to month. It also enables you to take full advantage of the tax credits available, thus increasing your margin. You can use this extra money for additional giving, to defray living expenses or to reduce your debt.

Although tithing or giving one-tenth of your income is a good place to start, it is by no means mandatory - and you definitely don’t have to limit yourself to this amount! Ask God where he would like you to direct your giving, and revisit the amount you give each year. Remember: All money is God’s money; you are the stewards so don’t hold on to it too tightly when he is trying to teach you to live generously. As the Bible says, those who sow generously will also reap generously.