Strategies for Combatting Market Timing
by Jim Pretin
Ideally, investors try to buy a stock when the price has reached a support level (a level at which the price is as low as it will go) and sell the stock when it hits a resistance level (a level at which the price is as high as it will go). This is easier said than done. Most investors end up missing out on a continual rise by waiting for a stock to plummet first, or sell way to early by underestimating how high the price will go. In this article, we will focus on the two most popular strategies that you can use to invest without having to worry about market timing.
Dollar cost averaging (DCA) is an investing technique intended to reduce exposure to risk associated with making a single large purchase. According to this technique, shares of stock are purchased in a specific amount on a specified periodic basis (often monthly), regardless of current performance. The theory is that this will lead to greater returns overall, since smaller numbers of shares will be bought when the cost is high, while larger number of shares will be bought while the cost is low.
An example of DCA would be as follows: If I want to buy 1,200 shares of IBM stock using DCA, then I might decide to purchase 400 shares of IBM per month over the course of the next three months. Hypothetically, during month one, the price of IBM may be $105 per share, and then it might drop to $95 per share during month two, and then rise to $100 during month three. If I bought all 1,200 shares during month one, I would have cost me $105 per share. But, by spreading the purchase over a three month period, I managed to buy IBM at an average price of $100 per share.
The primary drawback of using DCA is that you may not be maximizing your overall return. If there is an indication that a certain stock is currently undervalued and might shoot up in price, you would actually make less money using DCA than if you had bought all the shares in the beginning before the price skyrocketed. So, it is not always a winning strategy to spread your purchases over a period of time.
Value averaging, also known as dollar value averaging (DVA), is a technique of adding to an investment portfolio to provide greater return than similar methods such as dollar cost averaging and random investment. With the method, investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. As a result, in periods of market declines, the investor contributes more money, while in periods of market climbs, the investor contributes less.
Here is an example of DVA: I want to invest in Yahoo using DVA. For the sake of argument, we will say that Yahoo is currently $10 per share. I determine that the value of the amount I am going to invest over the course of 1 year will rise, on average, $1,000 each quarter as I make additional investments. If I use DVA, I invest $1,000 to start.
If, at the end of the first quarter, the share price has risen to $15 per share, that means that the value of my investment is now $1,500, which means I will only have to invest $500 at the start of the second quarter in order to bring the total amount of my investment for the first and second quarter to $2,000. So, I am investing less as the stock price increases.
Dollar value averaging usually works better than cost averaging because value averaging results in less money being invested as the stock price goes up, whereas with cost averaging you continue to invest the same number of dollars regardless of the share price. But, neither of these strategies are necessarily full-proof. Make sure you know something about the company you are going to invest in before you go forward.
About the Author
Jim Pretin is the owner of http://www.forms4free.com, a service that helps programmers make an HTML form
source:www.goarticles.com
Volatility and risk in stockmarket trading
If there is one area that is regularly ignored by CFD traders it is that of volatility, which is often confused with risk. Certainly in terms of grading different types of asset classes, the two are connected, and both the risk and volatility of a government stock for instance will usually be much lower than say a dot.com or emerging market smaller company.
But the bottom line is that risk is related to reward, and it simply measures the amount that it is possible to lose within each investment or trade. Volatility however measures how much prices rise or fall over a set time for each investment issue, sector or share, and this is very useful when constructing portfolios, assessing margin requirements and position sizing.
Standard Deviation – the basic measure of volatility
Standard Deviation is the basic statistical measure of the dispersion of a population of data observations around a mean (average), and is widely used in stockmarket trading, forex and commodity analysis. It is simply the square root of the variance, and is calculated as follows:
1. Establish the mean value over the chosen time period.
2. Measure the deviation of each data point from that mean.
3. Square each deviation (this ensures all the deviations are positive).
4. Total up the squared deviations.
5. Divide that figure by the number of data points less one.
6. The Standard deviation is the square root of that figure.
There are some variations on the way the STD can be constructed, but the above is the usual formula supplied with most trading software systems.
Problems with standard deviation
1. If using short term action, the validity of the STD becomes less certain due to the usual short term randomness in the market.
2. It is a retrospective measurement, and is of little use if there is a major change in volatility due to outside news. Having said that, there are certain technical buy and sell indicators which search for changes in volatility to establish potential new trading opportunities, and here it is very useful.
Implied Volatility
Many traders in the options markets will be aware of the use of implied volatility in terms of option pricing, and here the trader can use both the underlying price of the security and the prices of puts (rights to sell) and calls (rights to buy) to establish an expectation of future or implied volatility.
This creates arbitrage possibilities if the stock, or market, is incorrectly priced compared to underlying options available in it, and these disparities often occur after big price moves or panicky action. The formula for implied volatility is much more complex, but it is an interesting area for more sophisticated players to analyse, as it also includes dividend payments and interest rates.
What is beta?
Beta is another measure of volatility, and whilst totally different from standard deviation, it nevertheless provides another angle in portfolio or trade construction.
Standard deviation determines the volatility of a fund, market, sector or stock according to the disparity of its returns over a period of time, whereas beta determines the volatility in comparison to an index or other benchmark.
If an investor has a portfolio of shares with a beta of 1, this means that the list should generally match the underlying movement in that benchmark over time. It doesn’t mean that it will naturally perform better or worse on an individual stock basis, but if the FTSE 100 index was to rally by say 10% over one year, the portfolio with a beta of 1 would in total expect to improve by a similar amount.
On a trading level, each stock has its own beta which is important for CFD traders, and a beta of more than 1 suggests greater volatility than the benchmark, with a beta of less than 1 suggesting lower volatility.
A stock with a beta of 2 for instance would be expected to move 2 times more than the benchmark, or double the underlying index move. Clearly if a CFD trader has a balanced list of positions in terms of longs and shorts, the average beta on each side needs to be assessed in terms of the overall risk of big market moves in one direction.
Normally, but not always, the highest beta stocks are those with the greatest volatility as measured by the standard deviation, but also how much they are affected by the business cycle and interest rates. Fund managers, housebuilders and insurance companies for instance have much higher betas than supermarkets, pharmaceuticals and utility stocks.
In portfolio analysis, the beta coefficient, or financial elasticity (sensitivity of the asset returns to market returns and relative volatility), is a key parameter in the capital asset pricing model and is a way of separating an investor’s profits related to market action as opposed to the willingness to take risk. In essence this means how much added value there has been as opposed to just the luck from being in rising markets.
If one is highly bullish about the underlying market, it makes it easier to beat the market over the term in question by choosing high beta stocks. Equally, if a big fall is expected imminently, a CFD trader might prefer to take low beta long positions and high beta shorts if a balanced trading list was required.
The average true range indicator
This is an important indicator that can be used for setting stops and is also another way of measuring volatility, and is included in most software systems.
The ATR determines a share’s volatility over a set period that can be defaulted as desired. The daily ATR indicator is very simple to calculate and is the highest of:
The difference between the current high and the current low
The difference between the current high and the previous close
The difference between the current low and the previous close
Basically this is the maximum range in which the share has traded from the previous close to the current high and low. The average is then taken over a set number of days (ten is often used), and the stop is then calculated as a multiple of the ATR.
The reason traders like the ATR is that it captures more intra-day information, while the standard deviation only measures the volatility of closing prices (although it can be refined to include highs, lows, etc).
Reasons for volatility and what to look for
On a short term view, shares that have quotes in more than one market or currency may exhibit high volatility, but not necessarily a high beta. This is simply because of arbitrage possibilities, where traders buy the stock on one market and sell in another to take advantage of price discrepancies.
Changes in technology naturally affect the volatility of individual stocks because it takes a while for this information to become available to the wider investment community, so a period of volatility often ensues. Once the stock becomes more mainstream or loses its super-growth tag, volatility can often die down.
News-led events often lead to big changes in volatility, again as traders and investors begin to adjust expectations for future prices. This can include profit upgrades or warnings, unexpected changes in economic policy, natural disasters or geopolitical events.
If the volatility increases for the same investment amount, so does the potential risk and reward and trade sizes/stop losses should be adjusted accordingly for CFD traders.
If there is one area that is regularly ignored by CFD traders it is that of volatility, which is often confused with risk.
About the Author:
Mike Estrey is the Head of Research for Blue Index, specialists in Online CFD Trading, Contracts for Difference and Online Forex Trading.
Article Source: http://www.eArticlesOnline.com
An insight into Forex and online way of trading in Forex
By: acmarkets
The concept of forex and forex trading has changed drastically in the last few years. With the advancement of technology and enhancement of World Wide Web, anyone from any corner of the world can make his way into the forex and earn substantial profits. Today online forex trading with its flexibilities has turned out to be an effective medium to strike gold in forex. However before browsing through the forex, you need to mull over a few important facts, a few of which are given below:
If you are new to online forex trading, it is suggested to have an online forex trading class. Several online courses on forex are available around you. These courses are designed by experts, who keep their thumb on the pulse of forex market. Thus they can assist you thoroughly the very process of forex and its trading systems. Add to this, just with a single click on mouse you can access software which tell you how to make the most out of your online trade agreements. You can ask about a free trial offer also.
The online courses and tutorials will help you get the basics of forex and its trading secrets. Go through the system tutorials and practice the test trades. If anyone in your family is engaged with forex and its trading, ask him what program or software he uses. Once you get the feedback, try it out. The more you learn, the more you will be able to earn the secrets of perfect trading in forex.
Once you are loaded with basics of online forex trading, you should be ready for the next big leap i.e., trading in forex directly through your computer. If you can move with strategy and ideas, online way of forex trading can prove out as a big help for the method has several benefits in store. Here you have the flexibility of real time accessibility, 24 hour availability, Quick transaction system to name a few.
Real time accessibility is one of the worth mentioning benefits of online forex trading. Almost all major brokers and trading companies specialized on forex prefer to offer their clients real time quotes, data and particulars. This helps to remain updated about everything latest about forex. With 24 hour availability of the forex market, traders through online method can easily manage their portfolios anytime from anywhere. This helps a part time trader to keep a balance of all his working throughout the day. Again through online method of trading in forex, one can process a transaction within minutes.
If you are new to online forex trading, it is suggested to have an online forex trading class. The online courses and tutorials will help you get the basics of forex and its trading secrets. Now once you get the basics of online forex trading, you should be ready for the next big leap i.e., trading in forex directly through your computer. Online way of trading in forex has many benefits in store. Read the article to access the benefits.
forex and forex trading has changed drastically in the last few years. If you are new to online forex trading, it is suggested to have an online forex trading class. The online courses and tutorials will help you get the basics of forex and its trading secrets.
Article Source: http://www.eArticlesOnline.com
Stock Market Trading Tip - How To Choose Which Companies Or Sectors To Trade
by: Mike Ashley
An investor can use a number of criteria when determining a sector from which to select prospective stocks. However, it is important to do your own sector research to avoid becoming trapped by "professionals" who have vested interests in the sector they are promoting. So, ask yourself, is the stock in a sector that you think will do well? What are your reasons for thinking this? Answer those questions with careful research before selecting stocks within the sector for prospective investment.
P/E (profits/earning) ratios are most helpful as a prospective tool when comparing stocks within the same sector. Stocks competing within the same sector have similar expenses and expectations. With the P/E ratio the general rule of thumb is the lower the ratio the sooner stock prices are expected to rise. The P/E ratio represents the stock valuation of the company.
Now that you’ve selected some companies you wish to research further, you should be able to answer the following questions:
How has the company performed so far? Is the company growing regularly, from year to year?
How much cash does the company have available? Having cash available details the company’s ability to pay its bills and generally can determine how well managed the company is. Look at financial statements that are required by law to be filed with the SEC.
Look at the volatility of the share price. Have there been wild fluctuations? Compare charts over different periods.
Finally, determine if the prospective company is geared for quick gains or as a long-term investment. Answering this question may have to do with the type of investor you are personally.
Once you’ve done the research you should be able to determine why you want to select a stock for investment. You can invest with confidence, knowing that you have the research to back up your prospects. The better-informed investor makes better decisions.
About the Author:
Discover the insider secrets to stock market trading tip when you visit http://www.tradingsphere.com
Article Source: www.iSnare.com
The Impulsive Trader
By Frank Kollar
We are all familiar with the stereotype of the impulsive trader. Traders who are impulsively looking for trading thrills, while telling themselves they are doing it to make a profit.
The rush of adrenalin that comes from making the "big" trade and then watching to see if it is followed by a "big" win.
It is not so different from betting at the race track. It is far removed from what is required for successful market timing.
Impulsive market timers take trades because of emotional responses to news events, market rallies, or market sell offs, because they "feel" they know what is going to happen next in the markets.
They take trades not because the trade is required, but for the thrill of the trade itself. All risk controls are ignored, no logical trading strategy is followed, and no exit strategy is prepared ahead of time.
Of course anyone can act impulsively at times. But in the investing world, impulsive trades are almost always losing trades. Impulsive trading has led to the outright ruin of many traders.
Delaying Gratification
An interesting test was once run to measure a person's impulsive tendencies:
Participants were asked to decide between taking an immediate, small monetary reward (that is, $100 right now) or a larger reward given later, $500 in six months.
Impulsive people tended to take the smaller, immediate reward. They have difficulty delaying gratification. They can't wait for the larger reward. They want what they can get as soon as possible.
Even disciplined people can act impulsively when the conditions are right.
There is little harm in impulsively going for a latte instead of your usual morning coffee, black with two equals.
Yet while some impulsive decisions may have little effect on one's life, impulsive decisions made when trading the stock market can have major negative consequences.
Compulsively Impulsive
Market timing, and all successful trading for that matter, requires that investors clamp down on emotional impulsive behavior. Market timing is possibly "the" perfect example of unemotional, non-impulsive and non-compulsive planning. Timers look far ahead in time, planning for gains that may not be realized for months. If in cash during a bear market, actual profits may be postponed years.
Instant gratification is the exact opposite of what market timers must expect. Those who think that long term buy-and-hold investors hold the edge in long term planning are not correct. It is market timers, following a plan that takes years to unfold but offering gains far in excess of a simple buy-and-hold, who have the real long term strategy.
Conclusion
Impulsive traders will have great difficulty being successful (profitable) market timers. Market timing is the non-impulsive execution of a planned strategy, that can only be successful over time.
Market timing requires adherence to a trading strategy that requires trading not when you feel the urge, but only at specific points in time when your trading strategy tells you to do so. And, those times are often in direct conflict with the prevailing market sentiment.
Impulsive personalities face many difficulties. But in investing, be sure to hold those impulses at bay if you want to successfully beat the markets.
Article Source: http://EzineArticles.com/?expert=Frank_Kollar |
Is Factoring Right for Your Staffing Company?
By Dale Busbee
The margins in staffing tend to be smaller than many other industries, and in order to remain competitive in the marketplace, staffing companies must price their services at rates that the market will accept. There are many regional and national companies that will “buy” staffing business in order to gain or keep market share. The independent staffing companies that survive are the ones that have excellent customer service, while keeping their prices in line with the larger firms.
Which brings us to the question of whether factoring is right for your staffing company. Let’s assume you have been self-funding your firm from inception, then you get a job order for, let’s say, 100 new temps. These may be for positions that require highly skilled and very highly compensated professionals. You have the database of readily available candidates, yet your client will only pay your invoice after 5 weeks. If each candidate commands $35 per hour, and you are able to bill $50 per hour, for an average 40 hour week, your payroll for 100 temps would be $140,000. Multiply that by 5 weeks, and the capital needed to pay your employees before you get paid from your client is $700,000. Wow, not many staffing owners can find that amount of change in their sofa cushions!
Let’s examine the options. Assuming you have $700K in the operating account, you accept the job order gladly, send the temps, and wait 5 weeks for payment. Probably the easiest and least expensive option. 2nd option - check availability on bank lines of credit, credit cards, and any other lines of open credit, and hope it is enough to cover payroll for 5 weeks. 3rd option, ask your banker to increase your line of credit, and hope it gets done in the next 3 months. 4th option, take out a second mortgage on your home, car, or any other assets that are not sufficiently encumbered at this point, and pay those notes off when you get paid from your client.
The 5th option to consider is factoring your accounts receivables. This may be a viable option, once considering time value of money and opportunity cost of not taking on a new client. At a $50 bill rate, and a $35 payroll rate, the total margin for 100 employees in a 5 week period is $300,000. That could buy a few hamburgers these days! Let’s say your cost of factoring was 2.5%. Billings for 5 weeks would be $1,000,000. 2% of that amount is $20,000. Would you spend $20,000 to earn $300,000?? Most of us would. And the best part is no loans, no tying up of collateral, no worries about credit lines, no hassles, JUST POSITIVE CASH FLOW.
This is a very simplified example, yet the concept would apply to most staffing situations. Payroll funding and factoring can be a very easy solution that will allow you as a staffing owner to take on new business and maintain a positive cash flow while waiting for clients to pay your invoices.
If you would like to discuss your situation, please contact Dale Busbee, Business Development Manager, WL Funding, Inc. at (504) 833-5512 or via email at dale@wlfunding.com.
Article Source: http://EzineArticles.com/?expert=Dale_Busbee
How to Evaluate a Forex Trading System (Without a Degree in Finance)
It seems that everyone wants to bombard you with his or her favorite Forex trading these days. There is obviously some need for a systematic method of evaluating these various systems. The alternative would be rather chaotic and expensive.
There are ways to technically evaluate a Forex trading system, but these often go beyond the skills of many beginning traders. How does someone with limited technical experience go about evaluating the claims and/or effectiveness of the various systems that are presented?
While not entirely conclusive, I believe that a useful evaluation of a trading system can be done on a non-technical basis. And in fact, it is the first evaluation that I do, before I look more closely at the technical aspects of the system. After all, I don't want to waste my time if there are obvious problems that show up in this initial evaluation.
The first thing I look at is the presentation of the trading system. If it is presented through a web site, does the site have a professional appearance, or does it look like an amateur who couldn't be bothered to pay attention to details threw it together? I also pay attention to the grammar and spelling on the website as well as any other advertising materials.
Now that may seem petty and unfair. But if the grammar is poor, and there are misspelled words, it is another indication that there was not a lot of attention paid to detail. That fact could indicate problems with the actual system being presented.
Next, I evaluate the credibility of the claims that are made concerning the system. One of the ways I do that is by looking for any disclaimer or admission of fallibility on the part of the system designer. It is not only the presence of a disclaimer that is important. The quality of the disclaimer is important as well.
I saw one web site that claimed I could make 20% or more per day, and they all but guaranteed that fact. There was no sign of a disclaimer. There obviously was a credibility problem, and I never gave their offer a second look. Evaluating credibility is definitely an important step in the overall evaluation process.
After all that, I look for something that indicates the basic premise that the system is founded on. I don't expect a developer or vendor to give away their whole secret at this point. But if a system developer or vendor is willing to reveal their basic premise in even a limited fashion, that is a good sign, in my opinion. And then I ask myself if their premise makes logical sense. If it is something that makes logical sense to me, then I am willing to look even closer.
I once saw a trading system that was based on the premise that the markets move up and down along with the cycles of the moon. Now that is an example of a system that makes no logical sense to me. I do not mean to offend you, if you believe that the moon has anything to do with the movements of financial markets. But I would not be comfortable trading a system like that, because the underlying premise is not logical to me.
Those are some of the ways that I evaluate a Forex trading system on a non-technical basis. While this method of evaluation is not 100% conclusive, I find that I generally do not go wrong if I follow my gut instincts with those questions in mind.
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Jerry Brunet is a Forex trader, and software developer. He is the developer of a software program called The Forex-Backtester, which can be found at http://www.forex-backtester.com
Did you find this article helpful? Subscribe to Jerry Brunet's free "Trade While You Sleep" Newsletter at http://www.forex-toolbox.com
Article Source: http://EzineArticles.com/?expert=Jerry_Brunet
Forex Trading MachineUS Sub-Prime Mortgage Jitters Affecting The UK Stock Market
By: Andrew Regan
Sub-prime mortgage lenders in the USA are struggling to survive and their demise is impacting significantly on the world's financial markets. In London, the FTSE has undergone a series of significant drops, suffering the biggest fall for seven years in one day alone on Friday, 10th August, wiping out most of this year's gains. As a result there is now a real fear that the housing market crash in the US could be repeated here in the UK.
The panic selling and lack of confidence in the stock markets can be traced back to the collapse of the sub-prime mortgage market in the USA. Rising delinquencies and defaults amongst sub-prime mortgage borrowers in the USA have led to a reassessment of the value of such holdings by investment bankers who bought heavily in securities for the risk. They are watching the potential paper value of their investments virtually disappear overnight as US house prices collapse, provoking panic and attempts at consolidation in almost equal measures.
Sub-prime mortgages are usually given to those who can't prove their income or have poor credit status, or maybe even both. In return for receiving higher interest rates from borrowers, lenders are willing to take a risk on this type of bad credit loan. When house prices are increasing, the risk is minimal because if the borrower defaults, the lender has a charge on the property and can therefore force the sale of the property recouping the initial investment, any interest due and recovery charges.
However, in a market where house prices are dropping, as it is in the US, the value of the property may become less than the outstanding liability leaving the lender with a significant loss. Because US sub-prime lenders have the least ability to absorb defaults as most of their borrowers take out 100% mortgages, they are most prone to collapse if it all goes wrong.
The largest sub-prime lender in the US New Century issued sub-prime loans amounting to $33.9 billion last year alone. It is now being investigated by federal investigators to establish whether impropriety featured in their business practices. It is the bad debts recorded by lenders such as New Century that are causing the extreme jitters in financial markets throughout the world, causing analysts to question whether the situation will be repeated in the UK. That has prompted many UK lenders to evaluate their most at-risk loans to determine their exposure and ensure that they have an adequate amount of capital to cover the potential losses. Thankfully, the UK market is thought to be less exposed to sub-prime lending than the US market. Plus, providing house prices in the UK continue to rise or remain stable then lenders that have issued such bad credit loans to homeowners will not be affected. Any threat will materialise if house values in the UK fall as the amount of equity in properties will also drop, and that could lead to the sort of financial chaos witnessed in the US.
The spectacular demise of the US sub-prime mortgage market has caused UK financial analysts to question whether the UK housing market is under the same threat.
Andrew Regan is a freelance online journalist and part time writer.
Article Source: http://www.eArticlesOnline.com
How to Get Started as an Apartment Real Estate Entrepreneur
By: David Jackson
By now you know you want to be in the apartment buying business. The process is fairly simple if you consider this three step plan:
STEP 1 - Decide which horse you’re going to ride:
First things first, before you can get started as a real estate entrepreneur, you have to know what you want to do. I know we all want to become insanely rich with real estate investments. But we have to have a focus. The questions to ask yourself are: Do you want to invest in duplexes, triplexes, quads? How about 10-units, 50-units, or 100-units? Are you interested in wholesaling, rehabbing, or retailing these properties? There are so many options. Trust me, you must have a focus or you will get caught in a web of great ideas that will lead you nowhere.
STEP 2- Don't get caught up in paralysis of analysis.
That’s the worst success killer in the business. The best strategy is to learn the basics. Don’t confuse this with learning everything there is to know before you do anything. It is not possible to expect to be an expert before you begin. It took me seven months do my first deal. That’s right! Seven months. I overanalyzed each and every step. I made the mistake of focusing all of my attention on this one deal. There was no guarantee that this deal was going to close, but I still didn’t consider looking at any other deals during this time entire process. In my case I was lucky. The deal did close and the end result was great. I ended up netting $25,000 at close. But think about all the wasted time I did over analyzing deals. Better yet, think about all of the potential deals and money I could have considered, if I had looked at other deals.
STEP 3 - Proceed immediately to your first deal.
If you want to become an apartment investor, then keep in mind that there is no such thing as lack of time. Every human being has the same number of hours in a day as you do. To become an successful entrepreneur, it is important to choice carefully what you do with your time. You must determine exactly what you want to do and give it your laser beam focus. Keep in mind that it’s OK to fear failure, but you must give yourself a chance. Occasional failure is good as long as you are failing forward and learning from it. Lastly, go after your first deal. It’s your future and the only way to predict your future is to create it!
And . . . Always Remember, You Can Replace Your Income With One Deal!
Getting started a an apartment real estate entrepreneur is fairly simple if you follow this three step plan
David Jackson, the Massive Cash Flow Guy, is a real estate investment expert and author who has found his niche in apartment investments (http://mymassivecashflow.com/whybuy.html). He has taught numerous students his proven strategies to buy apartment buildings while being broke and with no money of their own. Visit Jackson’s site at http://www.mymassivecashflow.com. You can also register for a free newsletter and claim a free audio CD at http://www.freeapartmentbuyingtips.com.
Article Source: http://www.eArticlesOnline.com
Trading Forex- GBP-JPY outlook.
For those who trade currencies and Yen crosses in particular, last three weeks were truly eventful. We witnessed, or even participated in, very large moves. These kind of of moves were experienced for the first time by most current Forex traders. Why? Currency trading has been embraced by general trading public after 2000. During this time period there were no moves of this magnitude so fast.
Price action like that is not without precedence. In 1998 we had even more severe sell off in Yen crosses, with the biggest one day trading range about 1600 pips, considerably larger than 1000 or so pips lately. That particular market panic was attributed to the implosion of Long Term Capital Management hedge fund, with it star studded team of managers and traders. From the perspective of years we can see that led to a prolonged bull market in Yen, with GBP-JPY falling to 150 two years later.
In February of this year we had good size Yen rally, leading to 221 level in GBP-JPY. This particular cross, and AUD-JPY together with NZD-JPY, have been speculators favorite. Large daily moves, very attractive interest spread differential, presented large potential gains. In the craze of “carry trade" many people entered into positions not fully understanding risks or simply over leveraged.
Once price resumed its upside direction in early March, many brokers, trading houses money management companies and trading advisors issued “buy" recommendations citing that the worst was over. New positions were established especially between 225-230 levels. That is the reason there was such a move acceleration once the prices fell under 230 last week. All those long positions opened few moths ago at those levels were being liquidated. Some voluntarily but , sadly, many more traders were issued a margin call and their holdings were dumped.
So what now? Is the worst over? Probably not. These kind of moves are often first leg in a longer term direction change. Most recent major low point of 221 has been undercut on Friday. This is a first important sign that previous trend has been broken. Prices moved higher later on in a day, but that's also consistent with significant price reversal formations. Don't be surprised to see level of about 240 again and then resumption of down trend.
Analysis of historical reversal patterns indicates that daily price movements should stabilize somewhat ever next couple of weeks, returning to the more “typical" 200-300 pips daily range for GBP-JPY. Should the price breach the 220 again, bear market would be confirmed. Judging by recent price swings, that would indicate a target of about 200-195 for the down move. Expect much more orderly sell off, not like last week. As always, time frame is the most difficult aspect of trading to predict, but about a year to a year and a half would be good fit between historical patterns and current market behavior.
It must be noted that this current “sub prime credit crisis" or whatever name the mainstream press will eventually label it with, is just a stumble, a breather in a multi year major bull market for GBP-JPY, well on it's way to 300 in some, not too distant, time in a future.
Mike Kulej is a Chief Forex Strategist for Spectrum Forex LLC., and a creator of highly effective “Rainbow" trading system. He specializes in mechanical trading systems as explained on www.spectrumforex.com . Spectrum Forex LLC offers numerous services to individual traders. With questions and comments e-mail him at kulej@spectrumforex.com .
source:searchwarp.com
Savings Accounts - Choosing A "Rainy Day"
By Tim Bennett
First the bad news – none of us are saving enough money. In the US last year the proportion of household income stashed away, known as the “savings ratio” plummeted to a level last seen during the Great Depression. In a recent survey, Sainsbury’s revealed that in the UK, one in five people claim not to have enough saved to last even a month if they lost their jobs and 12% of us have no cash savings at all. In fairness some would argue that with interest rates hitting rock bottom over the last five years no one, on either side of the Atlantic, has had much of an incentive to squirrel money away. However times are now changing - the UK base rate has risen sharply in the last 12 months and banks and building societies have, in most cases, responded by offering some pretty juicy savings rates. In any event it makes sense to have the equivalent of at least three months gross salary tucked away just in case. After all no one knows what lies around the corner – redundancy, marriage, an accident or just some time off. All a lot easier to deal with if you have a savings buffer. Given the vast number of savings accounts around, what features should you look for?
A decent interest rate
As a rule of thumb, if a bank’s savings account isn’t paying at least the Bank of England base rate then sign up with someone else because there is plenty of choice. The best rates tend to be for accounts operated either over the internet or by post as this saves the provider administration costs. Also, if you are aged 50 or above make sure you are getting the slightly enhanced rates often available for “silver savers”. At moneysupermarket.com you can compare rates at a glance. Having opened an account, it pays to monitor the interest rate periodically as some banks offer a great introductory deal but don’t then keep up with competitors as the base rate rises. Also watch out for hidden interest penalties for making multiple withdrawals - even on an instant access account, some providers will dock that month’s interest for example.
Flexibility
The point about saving is easy access – why set up an emergency fund that you can’t access for say three months? Although you may (though this is by no means guaranteed) get a little more interest on a notice account or a fixed term deposit there are often penalties for making withdrawals and we think the extra flexibility of being able to get to your money immediately, with a “no notice” account, more than compensates. The other problem with fixed rate accounts is that if interest rates rise while your money is locked away you won’t be able to take advantage.
Tax efficiency
Make sure that you use your individual savings account allowance, as the money earned is tax free up to the government’s limit – currently £3,000 per year - whereas interest in a normal account is taxed. Again, shop around as there are many Isa providers and interest rates and charges on these accounts can vary.
Offsetting – do your homework
Given that many budding savers also have mortgages, an account that lets you offset any balance in your savings account against your mortgage can look tempting and save some tax. The idea is that say you had £10 of savings and a £100 mortgage, with this type of account you would only get charged mortgage interest on the net balance of £90. Whether this is a good idea depends on several things – the offset mortgage rate you pay may be higher than for a standard mortgage for example, and the savings rate you could achieve somewhere else might be better too. Nonetheless worth investigating.
Tim Bennett, Chartered Accountant (in-house) writes about financial news and investing strategy for MoneyWeek.com
Article Source: http://EzineArticles.com/?expert=Tim_Bennett
Watch out for low-PER 'value traps'
Melanie M.
If you think a low PER means 'cheap' and a high one means 'expensive', be careful. It ain't always so.
Hands up. Have you ever made a list of all stocks trading on low PERs from the newspaper? Don't be shy, because many of us have. From the beginning of our investing lives, we're taught that a low PER means a stock is cheap, while a high PER means it's expensive. Indeed, we get regular queries from subscribers which indicate that this is a deeply held general belief.
But there are many areas where deceptively low PERs can spell trouble for unwary investors. In this Investor's College we'll look at several sharemarket sectors that are particularly prone to these 'value traps'. If you're looking to brush up on what a PER is, take a look at the Investor's College articles from issues 124 to 127 of The Intelligent Investor. They're available here and make for a good refresher course.
Accounting standards should ensure a company's profit reflects economic reality, right? Well, in the case of infrastructure funds, such as airport investor Macquarie Airports (MAp), nothing could be further from the truth. Under Australian accounting standard AASB 139, MAp elects to revalue its airport investments every year to fair value, taking the change to the income statement. But if you can keep your eyes from glazing over, we'll see that these apparently arcane accounting shenanigans can make for some extraordinary results.
Read more of Watch Out for Low-PER Value Traps and information on investing in share at The Intelligent Investor.
source:users.search-o-rama.com/
Renters Insurance Guide - Renters Insurance Simplified
Brian Stevens
Confused about renters insurance? Here's a renters insurance guide that will help you understand it.
Renters Insurance Guide
Many people think their landlords insurance will cover them if their possessions are stolen or damaged. Not so. Your landlord's insurance only covers the building you live in, not your possessions. If you want to protect your possessions you need to get renters insurance.
Renters insurance is one of the least expensive types of insurance, yet it provides invaluable protection for you and your possessions. Renters insurance covers three basic categories:
Personal Property
Personal property coverage pays to replace your possessions if they're stolen, or damaged by vandalism, fire, smoke, lightning, explosions, windstorms, burst water pipes, or electrical malfunctions.
There are two types of personal property coverages available:
Actual cash value coverage - which pays to replace your personal property minus a deduction for deprecation.
Replacement cost coverage - which pays to replace your personal property with no depreciation deduction.
Standard policies only provide limited coverage for expensive items like jewelry, furs, silver, and collections, so you may need to purchase additional coverage for these items. Standard policies also do not cover damage caused by floods or earthquakes, so if you want coverage for these disasters you'll need to purchase additional insurance.
Additional Living Expenses
This coverage pays for your living expenses - hotel, motel, and restaurant bills - if your home becomes uninhabitable due to the causes mentioned above. Most insurers will reimburse you for the difference between your additional living expenses and your usual living expenses.
Personal Liability
Personal liability coverage pays for another person's medical expenses if you, a family member, or your pet injures that person. It also covers damages to that person's property. Some policies do not cover pets such as as pit bulls or rottweilers.
Standard policies usually come with $100,000 to $300,000 worth of liability coverage, but you can purchase more if you have a lot of assets you want to protect from a lawsuit.
Cheap Renters Insurance
Because renters insurance can vary by hundreds of dollars from one company to the next, the best way to get cheap renters insurance is to visit an insurance comparison website to get quotes from multiple companies.
Visit http://www.LowerRateQuotes.com/renters-insurance.html or click on the following link to get renters insurance quotes from top-rated companies and see how much you can save. You can also get more insurance tips there.
The author, Brian Stevens, is a former insurance agent and financial consultant who has written extensively on renters insurance guides.
Source: http://www.articlealley.com/article_202522_19.html
"Stagnant" & "Down" Scenarios
By John Roney
If we apply the covered call strategy to the stagnant stock scenario, we take a negative return scenario and turn it into a positive. Remember, when we sell an option, we receive a premium for doing so.
When the stock does not move during the option's life, the extrinsic value of the option goes to zero. The money paid for the option goes to the seller. We'll take a look at how this sets up.
Let's go back to our previous example with the stock trading at exactly $9.50. We sell the front month, at-the-money call, which would be the 10 strike call. We sell the front month 10 strike calls at $.50. As time goes by, there is less chance for the option to become "in-the-money". As this happens, the extrinsic value lessens and finally, after Friday expiration, the option is worthless.
The stock finishes at $10.00 and you have received no capital appreciation but you have received the full $.50 of extrinsic value from the option sale. If the studies are correct and selling the premium works 80% of the time, then you will collect approximately $4.00 per contract sold over a year.
As the examples demonstrate, writing covered calls against a stagnant stock can provide you with an acceptable return instead of frustration, wasted time and capital.
The "Down" Scenario
In the final scenario, where your stock purchase is headed down into negative territory, the covered call strategy can help minimize your losses. Although picking losers and incurring losses is inescapable, it can be minimized and controlled. Let's take a look at how the buy-write can help us do that.
For example, let's say you bought a stock for $9.50 and at the end of the month the stock had traded down to $8.50, you would have a $1.00 loss on our investment.
However, if you had sold the 10 strike calls for $.50, you would only have a $.50 loss. You would have a $1.00 capital loss in the stock, but a $.50 option gain from selling the option, which would expire worthless.
If you were going to buy the stock anyway and incur a possible loss, it is better to take a $.50 loss than a $1.00 loss. In this down scenario, the option premium received helped to offset the capital loss.
If the stock is down more than the amount you received for selling the call, then the option premium serves as an offset to the loss of the stock.
However, you can still make money in the "down scenario" using the covered strategy if the stock is only down a small amount. There is a scenario in the buy-write strategy where you can profit from owning a stock that is lower than where you bought it.
Going back to the previous example, you bought a stock for $9.50 and you sold the front month 10 strike calls for $.50. At expiration, the stock finishes down $.20 at $9.30 You would have incurred a $.20 loss on your stock.
However, with the stock at $9.30, the 10 strike call that you sold for $.50 is now worthless. So, you have a $.20 loss on the stock and a $.50 gain from the option premium sold. This leaves you with a gain of $.30 on a stock that is down $.20 since the time you purchased it.
To recap: in our third scenario, the "down scenario," your loss will be offset by the option premium you received, hence your loss will not be as severe. You still may incur a loss, but it will be minimized, and minimizing losses is a key to successful investing.
This Article Provided Is By The Options University: Options Trading Strategies For Safer Investing and Consistent Profits. Discover how to protect your investments with the leveraged power of options. Step-by-step video tutorials, articles, free and premium trading content can be found at: http://www.TheOptionsUniversity.com
Article Source: http://EzineArticles.com/?expert=John_Roney
Buying a Bank Certificate of Deposit - The Advantages and Disadvantages of Certificate of Deposits
Mike_AshleyIn the World of Finance, A CD does not mean a compact disc; it stands for a certificate of deposit. Thus, if you manage to buy a CD through savings and loans or through banks that is worth a certain amount of money, then the bank will be paying you in return a specific interest rate for a certain time. Consequently, if you buy a thirty-month CD, you may get a 3%, which is equivalent to $5000. Although a bank might not issue CDs for less than $1000, this is not the case all the time. Usually there are no requirements for issuing CDs.
You are free to choose when to get your interest, whether annually, quarterly or monthly, or even with the maturity of the CD. Just take care that whatever your interest is, it will never be added to your original amount of the CD. This stands in open contrast to a normal savings account. Nevertheless, you can choose to be paid by check or to have your earned interest deposited in a new account.
It is preferable not to redeem your CD before the maturity date agreed upon. If you cash earlier than agreed upon, you might lose 3 to 6 months of interest payments; such a penalty is known as the “penalty for early withdrawal”.
One of the advantages of CDs is their being insured by the government (usually the FDIC program) and this is because they are certificates issued by banks. In other words, buying CDs is a risk-free investment.
Another advantage is the freedom to buy and sell your CDs just like any bond or stock, for example, through a brokerage house. By selling your CD this way, you will avoid the penalty payment.
You should also put into your consideration that CDs usually come with a minimum, mostly $5000 and they must have round numbers (multiples of 1000).
Discover the secrets to the best certificate of deposit rate when you visit http://www.tradingsphere.com - the premiere online trading portal on stock market trading tips and resouces
Article Source: http://EzineArticles.com/?expert=Mike_Ashley
Living on a Budget
Emma Snow
Living beyond financial means and incurring large amounts of consumer debt are increasing among individuals and families. Whether your income is large or small, creating a budget and adhering to it, will allow you to avoid debt and make better choices about needs and wants. When you create a family budget it is not so much the size of your income that determines success, but the way it is spent. The first step is to identify payments and bills and start to allocate your monthly income accordingly. Make categories for each item such as; rent/mortgage, car payment, utilities, food, household items, entertainment, vacation, household repairs, personal spending, savings.
Budgets can be customized to fit individual and family means, as well as needs and wants. As it is identified where money is being spent, evaluating purchases and what can be cut, changed or eliminated will allow for more conscience and effective spending. Many people do not realize how much they spend on eating out, unnecessary household items or clothes. The money is gone and they can't account for where it went. This is not only damaging financially by spending more than one has, but it is less fulfilling because it is thoughtless purchasing. For many, immediate gratification in purchasing has led to a plague of debt and bankruptcy. Avoid the trap of interest and wastefulness by making clear decisions about money. Here are some suggestions to help make a successful budget.
Counsel with partner/family on a regular basis about spending Regular communication and goal setting allows for financial success because all parties are on the same page and work together to make decisions for the family. By talking about goals it identifies concretely what the needs and wants are for the home and family and helps eliminate the power that impulse can have when shopping. Make decisions together including gifts, eating out, home improvements and personal spending amounts. Setting a limited amount allocated for each person to do with what they want without reporting gives freedom of choice, but controlled. Depending on your financial status that amount will vary and could be as little as $50 a month. It is important to keep it within an amount that can be afforded.
Use it up, wear it out, make it do, or do without It seems as though the more people have, the more they want. Just getting more money is not the solution for most financial struggles. Learning to evaluate needs and what can last and what needs to be replaced is the first step to putting money in the best places and making what ever your income is, be enough. Although it is tempting to "keep up with the Jones' " comparing possessions to others and trying to have what they do will not allow for a successful budget. If items are bought on borrowed money then possessions are not a true reflection of finances anyway. Making due with what one already has will eliminate a lot of unnecessary spending and free up money for more wise purchases.
Give thought to purchases Planning for purchases and saving before something is bought will prevent unnecessary debt and the consequences associated with it. Mindless spending has as negative of impact on the household as mindless eating does for the body. You end up with more than you need in the wrong places. Plan for what you want by making a list of most important or most desired to least important. Identifying your needs and wants will give focus and direction for spending and help prevent impulse buying. Shop around and see what is out there, what the going rate is for an item, and what a good deal would be. Watch for sales and coupons to make the best purchase.
Include savings in a budget Living within financial means is not living on the maximum made, but planning for a rainy day. Because unexpected events can and do happen planning for such situations will prevent the debt that would have to be incurred to pay for them. The more a person saves, the better, set aside as much as possible in this area for security and protection. Regret of purchasing is much for common than regret of not purchasing.
Creating a budget will reduce financial stress. Making conscience spending choices, well thought out and followed through with will create financial freedom and power for individuals and families. Wise choices will increase the quality of life, even if the quantity of possessions is not, and greater peace of mind will be found, and that is success.
Emma Snow is a writer who specializes in financial planning. She has worked in the financial industry for over eight years. Currently Emma works on a Finance and Investing site at http://www.finance-investing.com and Investing Partners http://www.investing-partners.com
Article Source: http://EzineArticles.com/?expert=Emma_Snow
Stockbroker Career
By Nick Hunter
So you think you might want to be a stockbroker?
Perhaps the most popular area of the investment industry is that of a stockbroker. Although some of you might think that breaking into the business is difficult, but it actually is pretty easy. That of course depends somewhat on where you would be willing to work and what you would be dealing in. If you are a young person out of high school or college and can accept less guaranteed money for the potential to make a lot, then the options are limitless. Unlimited income and freedom to control your destiny.
Sound to good to be true? Maybe, but the fact is many people have changed their lives by becoming a Stockbroker or any Investment Professional. Brokerage firms that pay their brokers mostly on commission are always hiring. The idea that an unlicensed or inexperienced person will not be able to find a lot of openings is false. The risk that a stock brokerage firm takes when hiring new brokers in minimal.
A stock firm does not pay much in salary. $250-$500 weekly during training is the average. So, if a firm hires someone at $350 a week, the upside to the firm is high. You have to consider the initial loss of income when entering this business. If you are 20 years old, you might not consider that pay in the beginning as that low. Older workers with more personal and financial responsibilities have to consider it a little more.
Finding a job with a firm in this industry is different from others. Your choices are broad and the way you go about it can enhance your chances. Don’t just look for job ads in the newspaper or the Internet. Call up the firms themselves and inquire about openings even if they are not advertising. Look in your local phone book and call them. You may have an office of a terrific firm in your town that might hire you. Do not ask the receptionist if they are hiring. Ask to speak to the Sales Manager in particular. The Sales Manager of a firm is paid largely on the production of the brokers he’s managing. So, if you sound eager enough and come across well on the phone, I guarantee he will at least take your name and give it consideration if not bring you in that same day!
The Series 7 and the Series 63 licenses will be required before you can begin working with customers. Your firm will sponsor you for those exams. Other licenses may be needed depending on the firm and the securities they deal in.
Not an easy job for sure. It will take long hours, the ability and willingness to cold call effectively, and the drive to be the best. Only then, will you earn your worth.
Good Luck!
Nick Hunter is the President of American Investment Training, Inc. (AIT) http://www.aitraining.com He has personally taught thousands of students in the securities industry for over 15 years. His company offers home study courses for people looking to get licensed in the investment field.
Article Source: http://EzineArticles.com/?expert=Nick_Hunter
Everyone Needs to Start Saving Now
How important is saving money? Saving money is vitally important. In fact, it is one of the single most important steps to achieving most of your financial goals in life and becoming financially free. The sooner you begin to save the better of you will be later on.
Having a savings in place can also serve as a form of protection during a financial crisis. A financial crisis could include any of the following:
• Job Loss
• Unexpected expenses (i.e. auto repair or medical expense)
• Death of a family member
At the core of building adequate savings is debt avoidance. A savings serves as your cash reserve or safety net when you need it. The key is to have it in place before the need arises.
How Much Should You Save
The rule of thumb is to save a minimum of 10 percent of your take home pay in addition to your retirement planning contributions. By doing this on a regular basis, you become used to it and accustomed to living below your means. If you are able to save more then 10 percent, you should do so.
It is also recommended that you have 3 to 6 months worth of expenses saved up as your emergency fund. This amount includes all expenses, fixed and unfixed. For example, if in January you spent a combined total of $2900 on your mortgage, car note, utilities, insurance, food, credit card bill, and other expenses, then you would need to multiply $2,900 x 3 at the minimum. This means you should have between $8,700 and $17,400 saved up for emergencies.
Unfortunately, the sad reality is that many people live paycheck to paycheck with little or no savings. This is not good. You should work to build your reserve as fast as possible.
Automate Your Savings
Most payroll providers such as ADP and Paychex provide an auto transfer feature directly to your savings when you get paid. For example, if you elected to transfer 10 percent of your after income to your savings on payday, 90 percent of your after tax dollars would go into your checking account and the remaining 10 percent would go to your savings account. It’s that simple. You eliminate the guesswork and don’t have to worry about it.
Start As Early As You Can
In order to truly become financially free, you will have to start saving at some point in your life. Ideally, you should start in your twenties. Understandably, income level at that age will not be as much as someone in their fifties. The key is to simply start where you are. As time progresses, your income level will increase in direct proportion to your experience and educational advancement. This means that your ability to save more will increase as well. It is recommended that you start out saving 10 percent of your after tax income. As you get raises and bonuses, if you stick to the same 10 percent savings, over time, your savings level will grow and grow.
There are several benefits of starting to save at an earlier age. However, the primary reason is that you have time on your side. The sooner you begin, the more you will be able to accumulate over time. This protects you when emergencies arise. By building your savings now, you will have a larger nest egg available when you need it.
There are three primary factors that determine your savings accumulation levels:
1. The amount you save.
2. The interest rate of return.
3. The length of time you save.
Time is what can work for, or against, you. Therefore, the sooner you start, the better.
Tips on Saving
Growing your savings can take time; therefore start as early as possible. The amount doesn’t matter in the beginning. Just start some place and be consistent. Condition yourself into not missing or needing that amount. Over time, your savings will grow due to your diligence.
Here are some tips on saving to get you started:
• Save a minimum of 10 percent of all after tax income.
• Use the direct savings account deposit feature offered by your payroll provider.
• View your savings as another bill that has to be paid.
• Whenever you get a raise, increase your savings amount by a half percentage point or more.
• Save 10 percent of all cash gifts you receive.
• Once you pay off a line of credit (car note, credit card, or mortgage), continue to pay that same amount toward your savings.
About The Author
Kenneth C. Kelly is the President of Strativia, a financial management software development and services company specializing in applications for personal and business use. Strativia is the developer of Budget Forecaster, a sophisticated home budget and personal finance management software package.
Website: http://www.strativia.com.
Contact: info@strativia.com.
Dont Just Surrender Your Endowment Savings Value !
Alan Keys
Due to the high cost of charges by life assurance companies for early surrendered with-profits endowment policies there exists a market for second hand with-profits endowment policies in which brokers find best deals from purchasing market makers.
Those that hold endowment policies have the option to trade policies in before the end of the contract as required by circumstance. Policy holders are able to get improved offers for the policy they hold via competitive bids from the TEP brokers.
Via a broker, TEP Market Makers will assess the value of your endowment and make an offer based on your policy. If you decide to sell, the market maker then takes on the monthly payments until the policy matures or they resell to another individual on the open market.
People who are changing their mortgage, going through divorce, need more capital or who predict a fall in the profit of their endowment may have a requirement to sell they're existing with-profits endowment or life assurance policies.
Traded Endowment Policies or TEPs are second hand with-profits endowment policies legally assigned to new owners who pay the purchase price and take over the payment of future premiums. The life assurance cover remains on the original life/lives assured, but all policy benefits on maturity or, an earlier life assurance payout, are the property of the new owner.
As TEPs are purchased mid-term the policy already has a guaranteed value made up of the 'Basic Sum Assured' and 'Bonuses Attaching' and the initial charges have all been paid by the original policyholder.
Alan Keys writes for http://lowaprcredit.co.uk
Read More......Offshore Investment - Not Just For James Bond
By David Bardon
Offshore investing is often portrayed in the media, as the practice of sending your hard earned money to some Caribbean Island in order to evade tax or to find a hole for your ill gotten gains. Of course there are some jurisdictions that may fit into this bracket and we know that there are those whose nefarious activities have to result in ill gotten gains, and these people have to bank too. However, offshore investing as a strategy for some investors has its place in any planned portfolio.
What Is Offshore Investing?
Offshore Investment is essentially the strategy of investing outside the investors home country for the purposes of tax planning, privacy or gaining higher returns from investment vehicles not available to the investor in his home country. There is no shortage of money-market, bond and equity assets offered by reputable offshore companies that are fiscally sound, time-tested and, most importantly, legal.
Advantages
There are several reasons why people invest offshore:
Tax Reduction -When discussing investing offshore with your friends down the local watering hole this is the one area that comes up most frequently and, one would assume, would be the first reason that investors look offshore. Plenty of jurisdictions offer tax breaks of many kinds to encourage investments by foreigners. For small countries with little resources and not much tax income from its citizens there is an incentive to increase the countries economic activities by offering a safe, legal, tax efficient structure for companies to base themselves for investment purposes either as holdings companies or investment vehicles.
To put it in simple terms an individual or corporation can set up a company in an offshore jurisdiction where that corporation does not have any operational facilities or business (in fact most of these types of company are prohibited from operating in the host country) and as such it attracts little or no tax in that jurisdiction for investments made. This makes it very attractive as part of an investment strategy to route investments rather than doing this individually or corporately in the home state.
In recent years, however, the U.S. and UK governments has become increasingly aware of the tax revenue lost to offshore investing, and has created more defined and restrictive laws that close tax loopholes. Investment revenue earned through offshore investment is now a focus of regulators and the tax man alike. According to the U.S. Internal Revenue Service (IRS), U.S. citizens and residents are now taxed on their worldwide income. As a result, investors who use offshore entities to evade U.S. federal income tax on capital gains can be prosecuted for tax evasion. Therefore, although the lower corporate expenses of offshore companies can translate into better gains for investors, the IRS maintains that U.S. taxpayers are not to be allowed to evade taxes by shifting their individual tax liability to some foreign entity. In the UK the European Savings Directive was intended to be an anonymous way of a European country paying withholding tax on interest on foreign held accounts directly to the home state of the account holder. Unfortunately this has recently been usurped by the UK government to gather information on offshore accounts. They then gave an amnesty called 'The Offshore Disclosure Facility' which gave UK taxpayers until the 22nd of June 2007 to tell the tax man about their accounts, pay taxes due and a 10% fine. 50,000 people did so.
However, as the taxman becomes more sophisticated at finding ways to reel in the offshore loopholes, the practitioners will find ever more complicated ways of helping clients plan for their taxes in an efficient manner and investing in the right offshore jurisdiction is still the place to do this.
Asset Protection - Offshore centers are popular locations for restructuring ownership of assets. Through trusts, foundations or through an existing corporation, individual wealth ownership can be transferred from people to other legal entities. Many individuals who are concerned about lawsuits, or lenders foreclosing on outstanding debts elect to transfer a portion of their assets from their personal estates to an entity that holds it outside of their home country. By making these on paper ownership transfers, individuals are no longer susceptible to seizure or other domestic troubles. If the trustor is a U.S. resident, their trustor status allows them to make contributions to their offshore trust free of income tax. However, the trustor of an offshore asset-protection fund will still be taxed on the trust’s income (the revenue made from investments under the trust entity), even if that income has not been distributed.
The use of bearer shares, for example is a classic strategy of exchanging ownership of companies without a paper trail of transfer, and therefore tax. What is a bearer share? If you are in the UK pull out a bank note and you will see "promise to pay the bearer..." The very notes in your pocket are bearer notes meaning that whoever has the ten pound note in their hand owns it and it can be exchanged for goods and services. It is the same with bearer shares. Lets say you own a company that you have built up to be worth ten million Euros and you want to sell it. If it is a UK company, there would be capital gains and stamp duty on the transfer, evidence by a trail of paperwork. If it is an offshore company held with bearer shares, you could simply give the shares to whomever you are selling the company to and there is no trail to follow.
Of course it is not that simple, as there are other considerations, such as the fact that you should declare the sale, but you see where we are coming from.
Confidentiality - Many offshore jurisdictions, such as Switzerland, offer the complimentary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party. An example of a breach of banking confidentiality is divulging customer identities; disclosing shareholders is a breach of corporate confidentiality in some jurisdictions. However, this secrecy doesn't mean that offshore investors are criminals with something to hide.
It’s also important to note that offshore laws will allow identity disclosure in clear instances of drug trafficking, money laundering or other illegal activities. From the point of view of a high-profile investor, however, keeping information, such as the investor’s identity, secret while accumulating shares of a public company can offer that investor a significant financial (and legal) advantage. High-profile investors don’t like the public at large knowing what stocks they’re investing in. Multi-millionaire investors don’t want a bunch of little fish buying the same stocks that they have targeted for large volume share purchases - the little guys run up the prices.
Because nations are not required to accept the laws of a foreign government, offshore jurisdictions are, in most cases, immune to the laws that may apply where the investor resides. U.S. courts can assert jurisdiction over any assets that are located within U.S. borders. Therefore, it is prudent to be sure that the assets an investor is attempting to protect not be held physically in the United States.
Diversification of Investment - In some countries, regulations restrict the international investment opportunities of citizens. Many investors feel that such restriction hinders the establishment of a truly diversified investment portfolio. Offshore accounts are much more flexible, giving investors unlimited access to international markets and to all major exchanges. On top of that, there are many opportunities in developing nations, especially in those that are beginning to privatize sectors that were formerly under government control. China’s willingness to privatize some industries has investors drooling over the world’s largest consumer market.
Disadvantages
Tax Laws are Tightening - The UK 'Offshore Disclosure Facility' is just the start of an assault on tax loopholes and the IRS already tax US citizens on their worldwide income. However, where there is a will from investors and fees for the offshore practitioners and jurisdictions, there will be armies of accounts and advisers working on structuring further strategies for clients.
Cost - Although the general myth is that offshore investing is for the very wealthy, this is not necessarily true. In years gone by this may have been the case but with the information age and specifically the Internet, services are becoming more freely available and cheaper. However, services do not come free and the old adage is true "pay peanuts, get monkeys". Many companies offer a quick fix... set up an offshore company for $300 and away you go. Offshore tax planning is simply not this easy, it requires thought and planning, and with that comes fees.
How Safe Is Offshore Investing?
More than half of the worlds assets are held in offshore jurisdictions. If you ever go down to Monaco, have a look at the flags hanging off the super yachts. Ask yourself the question as to why a country such as St Vincent and the Grenadines (with 120,000 population and a low average income) is represented very well by multi million dollar yachts being registered there. St Vincent just happens to be a very tax efficient jurisdiction for such assets.
The question of safety is relative to what you are investing and where. Registering your super yacth in St Vincent is safe, because someone there is hardly likely to steal it, Would you invest your multi million portfolio from there? Maybe not. Places such as the Bahamas, BVI and of course, the daddy of all jurisdictions, Switzerland, have first class reputations for safety, privacy and security.
Conclusion
Investing offshore is different for every investor, depending on their home country, their wealth, the assets that they are looking to protect or the kind of investments that are being made, so each person requires a selected strategy. Creating this strategy may take lawyers, accounts and investment advisers to create the right structure. In the end, however, if the correct structure is created the benefits can be very good indeed.
There is, after all, a reason that the wealthy have been doing it for years....
The authors has been in the investment management business for over 20 years and specialises in the investment of private clients money into niche products such as discounted share deals, takeovers and IPO's through offshore facilities in Switzerland.
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