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Stuart T. Smith
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Small Cap NewsletterorSmall Cap Stock Investing

Article written by Stuart T. Smith

Article Submission by Small Cap Stocks

Author: Enterprising Investor Forum

As we wrote in our post following the rate cut (link),things are probably going to get worse before they get better. But where does this leave us today; is the US heading towards a recession? We are not sure that a recession is around the corner quite yet but there are some alarming signs that we are definitely going to see the economy slowing down:

* fear of increasing unemployment rate
* decrease in new home constructions
* decrease of new car sales
* consumer confidence decreasing

Having said this, we would like to remind readers that recessions are part of normal economic cycles and that it would be naive to think that they will not happen. Looking back, we have had roughly the same number of recessions than periods of economic growth, even though recession are shorter in span.What is important, is to make sure that investors are aware of the economic climate and that they invest accordingly. As we already said, do not mistake last week’s strength in the markets as a sign that the Bulls are back for good! Be prudent and focus on capital preservation instead of speculating.

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Stuart T. Smith
CEO of SmallCapVoice

Small Cap Stocks
or
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Article written by Stuart T. Smith

Article Submission by Small Cap Stock Investing

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Martin Lukac represents RateEmpire Auto Insurance marketplace which connects consumers with multiple insurance companies that compete for their business. RateEmpire is a destination site of Insurance quotes, personal finance, investing, taxes and mortgage rates. For more information please visit How to save money by investing on life insurance

by: Dexx Johnson

An unwanted side to investing in penny stock is how quickly you can lose money fast in a bad investment. Even though the rewards of penny stock investing are far greater than most investments you will find, the risks can be daunting.

If you are like me, you want high returns fast without losing money. I will show you two ways do avoid risk and get high returns, the slow way and the way I use (which I will mention at the bottom of the article).

Here is the long way, but one that works, to greatly reduce, perhaps even eliminate, the risks of penny stocks:

1. Beware Hot Stock Tips: You have most likely received a "hot tip" via spam email at some point or another. The promoter promised you fantastic guaranteed returns on your hot penny stocks investment. They word the email to make it a "once in a lifetime" opportunity to you. The best thing to do is delete the e-mail. Chances are you're being scammed by a "boiler room" scam operation. These shady operators buy up worthless shares at fractions of a penny and then attempt to flip them for a few dollars per share.

2. Trading Penny Stocks in Unregulated Exchanges: Unregulated environments do not have to meet the traditional requirements expected of most exchanged that involve penny stocks. Companies in these situations tend to be of lesser quality. Avoid stocks traded on the OTC or pink sheets.

3. Erratic Trading Activity: You should avoid purchasing penny stock that is trading erratically. You could be stuck with the shares for a long time since it's very hard to find a buyer.

4. Lack Of Reporting By Company: When you invest in a company, you want to know what you're buying. To give you an idea, you need their financial statements in order to properly evaluate the company. If no financial statements are issued, the company might have something to hide.

5. Company Hype: Be careful of companies that constantly issue statements that highlights the latest developments but provides no details on how it helps increase revenue or profits.

You may find all these tips frightening in the fact that it requires a lot of in-depth research to be done on all stocks you are considering purchasing, and you'd be right. However proper research is key to eliminating risk!

For those not accustomed to it, the stock market looks either a rosy picture or the dooms day scenario. In reality, it is a mixture of both. By investing in researched stocks, you can get the money of a life time or if you are not careful, you may lose the money of life time. While not every one can become Warren Buffet in stock market, at least you can avoid losses by avoiding the following 5 tips provided above.

I've been quite successful at the age of 24 using penny stocks to not only pay off my college tuition for the past two years, but also keep me debt free! This has been done through following the advice I outlined on my personal website Pick Top Penny Stocks.

Regardless of the method you use to do your research, just make sure you do research!

Enjoy, and here's to your success!

source:searchwarp.com

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By: Randy Martin

Investing in bonds and stock market investing are classified as investing in securities. Your risk appetite decides how much to invest and in which class. However during inflation times bonds give lower returns, but still are more safe as compared to stocks. Stock prices are volatile and have more risk associated with them, but can yield more.

You should invest partly in bonds and the balance in stocks. If you are older, invest less amount of money in stocks and more in bonds. However,if you are young,you should invest more in shares of companies. Choose those companies for stock market investing that have growth potential and proven track potential.

There different sizes and categories of shares- large, mid and small caps and penny stocks. A beginner should invest in large and mid cap companies and he can consider investing a small portion in small caps and hot penny stocks only after he has gained experience. These small caps and hot penny stocks are the riskiest but give the largest returns if handled properly which needs expertise and nerves of steel.

You should not jump in something Stock market investing; it needs a lot of time to learn the basics of stock market investing. You can start investing once you have gained some experience. It is suggested to invest small amounts of your money over a period of time rather than investing all the money at once.

Bond investing is quite easy as compared to stocks. You can get a list of high rated companies and government bonds from your banker or broker easily. Bonds will give you a good return only if you hold them for a long time period. On the other side people wanting returns in short period can look for investing in stocks and at the same time stocks can be held for long time too.

Do not consider the tips from others on which share to buy especially in the case of riskiest investments such as hot penny stocks. You can consider these risky investment options only after thorough research on the company concerned and all other related factors has been done. Have a good time investing!

Investing in bonds and stock market investing are classified as investing in securities. Your risk appetite decides how much to invest and in which class. However during inflation times bonds give lower returns, but still are more safe as compared to stocks. Stock prices are volatile and have more risk associated with them, but can yield more.

Evolve into an enriched investor by acquiring tips on stock market investing and how to trade penny stocks online - start making money once more.


Article Source: http://www.eArticlesOnline.com

by: Roger Overanout

What is the secret to being successful at stock investing as a beginner? Nearly everybody has heard stories about people making millions overnight using the stock market. In reality, there are many myths about investing in stocks. It is not always straightforward, sometimes even professional investors need to rely on a hunch. Stock investing can be, however, very rewarding and a lot of fun if you're prepared to take the time to learn about stock market investing.

To make money on the stock market, you are going to need patience, practice, skills, experience and education. It is vital to research the companies you are planning to invest in and find out everything you can about them. To do this there are several sources of information available to you. You can use the media, magazines or browse online for information.

Look for information on mergers, new product launches and acquisitions which might affect the stock price of the company in question. Knowing about such things beforehand can help you to avoid risky stock investing. Check how the company has been performing on the stock market over the past few years, not just how it is performing right now. Make sure you use reliable sources for information and avoid friends with “hot tips" – this is your money, after all and when you are on investing on the stock market you want to make sure you're acting from a position of knowledge. It is a bad idea to just invest in stocks at random. This is like going to a roulette table and putting every dollar you have on red.

You should begin with very small investments. If you start off with a large investment and immediately lose it, this might put you off stock investing for life. Learning the basics, increasing your confidence and getting experience is vital, some people recommend paper trading but in reality if you have not actually risked any money then you do not get a true feeling of stock market trading.

It can be a good idea to invest in a company you have some knowledge about. This will not only make it more interesting to you but you will be able to understand the way the company works and the factors that cause fluctuations in that industry.

Diversity can be a good idea when it comes to investing in stocks. You might not want to risk all your money on one company’s shares. Maybe you will want to buy stocks in drug companies, electrical companies and entertainment – or a different combination. Putting all your eggs in one basket might result in losing all your investments overnight. Spreading the investment spreads the risk when it comes to stock market investment.

Do not base your purchasing solely on price. Perhaps a $3 stock may seem like a good idea if the company is doing well and expanding. But a stock costing $300 might bring you better returns. Of course, this does depend on how much you are willing to invest.

You might wish to seek advice from a stockbroker. Stockbrokers can offer good advice and obviously have much more experience than the average stock investing beginner. They do, however, charge fees, so it is up to you whether you want to use a broker or not. They can be useful but are not compulsory.

Perhaps the most important advice for the stock investing beginner is never to risk more money than you can afford to lose, no matter how safe the potential investment seems. There is always a degree of risk involved in stock investing and nothing is 100 percent guaranteed.



For lots more helpful information about all aspects of Stock Investing for Beginner visit http://www.stockinvestingforbeginner.com/

source:searchwarp.com

by: Monique Fell

There is always a risk when investing in real estate because property values rise and fall. The best protection you can have against this risk is to become knowledgeable of the market you intend to invest in. If you do this, you will be able to buy properties that are undervalued, improve them if necessary and sell at market rates. The more properties you can turn over using this simple formula, the more profit you will reap from your real estate investment strategies.

The two main ways you can buy properties at low prices with a promise of selling much higher, is to buy individual properties that are being sold significantly below their market value and to buy when the real estate market as a whole has bottomed out and is ready to rise. Both these strategies require you to do your research about the market in general and market values of comparative properties in particular.

Before investing in a local market, spend some time researching it. What are the current prices? What has been the market growth over the past twelve months? How has the population grown over the past twelve months? Are these trends likely to continue? You also need to research current and future development plans and assess their likely impact on future prices and market demand. For example, if there are a number of major development projects for apartment complexes that will be available for sale at the same time you will be selling an apartment you may have to lower your asking price in order to make a sale.

The real estate market should not be viewed as an isolated market. It is a function of the local, state and national economies. If unemployment rises, interest rates rise or other economic pressures are placed on people, the real estate market will be affected. Therefore, you need to pay attention to what is occurring in the wider world. If you are thinking of purchasing an investment property in a location where residents are largely reliant on one or two major employers there is a risk to the stability of the real estate market in that area. If a manufacturer closes their factory, for example, people will not be able to afford their mortgages and properties will come on the market depressing prices. Successful real estate investment strategies therefore must include an understanding of social and economic impacts in a market as well as current and expected trends.

Apart from these broader issues, a successful real estate investor will carefully consider all facets of any individual purchase. The current market value, all the costs associated with the purchase, estimated costs of necessary improvements and likely selling price are all important aspects of any decision to purchase a real estate investment property.

If you do your homework and implement sound real estate investment strategies you will be well equipped to make a good profit with minimum financial risk. As you practice sound strategies you will increase your experience and develop an instinct for good buys and become an increasingly successful investor.

source:searchwarp.com

By Steve Selengut

The reason people assume the risks of investing in the first place is the prospect of achieving a higher rate of return than is attainable in a risk free environment'i.e., an FDIC insured bank account. Risk comes in various forms, but the average investor's primary concerns are 'credit' and 'market' risk' particularly when it comes to investing for income. Credit risk involves the ability of corporations, government entities, and even individuals, to make good on their financial commitments; market risk refers to the certainty that there will be changes in the Market Value of the selected securities. We can minimize the former by selecting only high quality (investment grade) securities and the latter by diversifying properly, understanding that Market Value changes are normal, and by having a plan of action for dealing with such fluctuations. (What does the bank do to get the amount of interest it guarantees to depositors? What does it do in response to higher or lower market interest rate expectations?)

You don't have to be a professional Investment Manager to professionally manage your investment portfolio, but you do need to have a long term plan and know something about Asset Allocation' a portfolio organization tool that is often misunderstood and almost always improperly used within the financial community. It's important to recognize, as well, that you do not need a fancy computer program or a glossy presentation with economic scenarios, inflation estimators, and stock market projections to get yourself lined up properly with your target. You need common sense, reasonable expectations, patience, discipline, soft hands, and an oversized driver. The K. I. S. S. Principle needs to be at the foundation of your Investment Plan; an emphasis on Working Capital will help you Organize, and Control your investment portfolio.

Planning for Retirement should focus on the additional income needed from the investment portfolio, and the Asset Allocation formula [relax, 8th grade math is plenty] needed for goal achievement will depend on just three variables: (1) the amount of liquid investment assets you are starting with, (2) the amount of time until retirement, and (3) the range of interest rates currently available from Investment Grade Securities. If you don't allow the 'engineer' gene to take control, this can be a fairly simple process. Even if you are young, you need to stop smoking heavily and to develop a growing stream of income' if you keep the income growing, the Market Value growth (that you are expected to worship) will take care of itself. Remember, higher Market Value may increase hat size, but it doesn't pay the bills.

First deduct any guaranteed pension income from your retirement income goal to estimate the amount needed just from the investment portfolio. Don't worry about inflation at this stage. Next, determine the total Market Value of your investment portfolios, including company plans, IRAs, H-Bonds' everything, except the house, boat, jewelry, etc. Liquid personal and retirement plan assets only. This total is then multiplied by a range of reasonable interest rates (6%, to 8% right now) and, hopefully, one of the resulting numbers will be close to the target amount you came up with a moment ago. If you are within a few years of retirement age, they better be! For certain, this process will give you a clear idea of where you stand, and that, in and of itself, is worth the effort.

Organizing the Portfolio involves deciding upon an appropriate Asset Allocation' and that requires some discussion. Asset Allocation is the most important and most frequently misunderstood concept in the investment lexicon. The most basic of the confusions is the idea that diversification and Asset Allocation are one and the same. Asset Allocation divides the investment portfolio into the two basic classes of investment securities: Stocks/Equities and Bonds/Income Securities. Most Investment Grade securities fit comfortably into one of these two classes. Diversification is a risk reduction technique that strictly controls the size of individual holdings as a percent of total assets. A second misconception describes Asset Allocation as a sophisticated technique used to soften the bottom line impact of movements in stock and bond prices, and/or a process that automatically (and foolishly) moves investment dollars from a weakening asset classification to a stronger one' a subtle "market timing" device.

Finally, the Asset Allocation Formula is often misused in an effort to superimpose a valid investment planning tool on speculative strategies that have no real merits of their own, for example: annual portfolio repositioning, market timing adjustments, and Mutual Fund shifting. The Asset Allocation formula itself is sacred, and if constructed properly, should never be altered due to conditions in either Equity or Fixed Income markets. Changes in the personal situation, goals, and objectives of the investor are the only issues that can be allowed into the Asset Allocation decision-making process.

Here are a few basic Asset Allocation Guidelines:
(1) All Asset Allocation decisions are based on the Cost Basis of the securities involved. The current Market Value may be more or less and it just doesn't matter.
(2) Any investment portfolio with a Cost Basis of $100,000 or more should have a minimum of 30% invested in Income Securities, either taxable or tax free, depending on the nature of the portfolio. Tax deferred entities (all varieties of retirement programs) should house the bulk of the Equity Investments. This rule applies from age 0 to Retirement Age - 5 years. Under age 30, it is a mistake to have too much of your portfolio in Income Securities.
(3) There are only two Asset Allocation Categories, and neither is ever described with a decimal point. All cash in the portfolio is destined for one category or the other.
(4) From Retirement Age - 5 on, the Income Allocation needs to be adjusted upward until the 'reasonable interest rate test' says that you are on target or at least in range.
(5) At retirement, between 60% and 100% of your portfolio may have to be in Income Generating Securities.

Controlling, or Implementing, the Investment Plan will be accomplished best by those who are least emotional, most decisive, naturally calm, patient, generally conservative (not politically), and self actualized. Investing is a long-term, personal, goal orientated, non- competitive, hands on, decision-making process that does not require advanced degrees or a rocket scientist IQ. In fact, being too smart can be a problem if you have a tendency to over analyze things. It is helpful to establish guidelines for selecting securities, and for disposing of them. For example, limit Equity involvement to Investment Grade, NYSE, dividend paying, profitable, and widely held companies. Don't buy any stock unless it is down at least 20% from its 52 week high, and limit individual equity holdings to less than 5% of the total portfolio. Take a reasonable profit (using 10% as a target) as frequently as possible. With a 40% Income Allocation, 40% of profits and dividends would be allocated to Income Securities.

For Fixed Income, focus on Investment Grade securities, with above average but not 'highest in class' yields. With Variable Income securities, avoid purchase near 52-week highs, and keep individual holdings well below 5%. Keep individual Preferred Stocks and Bonds well below 5% as well. Closed End Fund positions may be slightly higher than 5%, depending on type. Take a reasonable profit (more than one years' income for starters) as soon as possible. With a 60% Equity Allocation, 60% of profits and interest would be allocated to stocks.

Monitoring Investment Performance the Wall Street way is inappropriate and problematic for goal-orientated investors. It purposely focuses on short-term dislocations and uncontrollable cyclical changes, producing constant disappointment and encouraging inappropriate transactional responses to natural and harmless events. Coupled with a Media that thrives on sensationalizing anything outrageously positive or negative (Google and Enron, Peter Lynch and Martha Stewart, for example), it becomes difficult to stay the course with any plan, as environmental conditions change. First greed, then fear, new products replacing old, and always the promise of something better when, in fact, the boring and old fashioned basic investment principles still get the job done. Remember, your unhappiness is Wall Street's most coveted asset. Don't humor them, and protect yourself. Base your performance evaluation efforts on goal achievement' yours, not theirs. Here's how, based on the three basic objectives we've been talking about: Growth of Base Income, Profit Production from Trading, and Overall Growth in Working Capital.

Base Income includes the dividends and interest produced by your portfolio, without the realized capital gains that should actually be the larger number much of the time. No matter how you slice it, your long-range comfort demands regularly increasing income, and by using your total portfolio cost basis as the benchmark, it's easy to determine where to invest your accumulating cash. Since a portion of every dollar added to the portfolio is reallocated to income production, you are assured of increasing the total annually. If Market Value is used for this analysis, you could be pouring too much money into a falling stock market to the detriment of your long-range income objectives.

Profit Production is the happy face of the market value volatility that is a natural attribute of all securities. To realize a profit, you must be able to sell the securities that most investment strategists (and accountants) want you to marry up with! Successful investors learn to sell the ones they love, and the more frequently (yes, short term), the better. This is called trading, and it is not a four-letter word. When you can get yourself to the point where you think of the securities you own as high quality inventory on the shelves of your personal portfolio boutique, you have arrived. You won't see WalMart holding out for higher prices than their standard markup, and neither should you. Reduce the markup on slower movers, and sell damaged goods you've held too long at a loss if you have to, and, in the thick of it all, try to anticipate what your standard, Wall Street Account Statement is going to show you' a portfolio of equity securities that have not yet achieved their profit goals and are probably in negative Market Value territory because you've sold the winners and replaced them with new inventory' compounding the earning power! Similarly, you'll see a diversified group of income earners, chastised for following their natural tendencies (this year), at lower prices, which will help you increase your portfolio yield and overall cash flow. If you see big plus signs, you are not managing the portfolio properly.

Working Capital Growth (total portfolio cost basis) just happens, and at a rate that will be somewhere between the average return on the Income Securities in the portfolio and the total realized gain on the Equity portion of the portfolio. It will actually be higher with larger Equity allocations because frequent trading produces a higher rate of return than the more secure positions in the Income allocation. But, and this is too big a but to ignore as you approach retirement, trading profits are not guaranteed and the risk of loss (although minimized with a sensible selection process) is greater than it is with Income Securities. This is why the Asset Allocation moves from a greater to a lesser Equity percentage as you approach retirement.

So is there really such a thing as an Income Portfolio that needs to be managed? Or are we really just dealing with an investment portfolio that needs its Asset Allocation tweaked occasionally as we approach the time in life when it has to provide the yacht' and the gas money to run it? By using Cost Basis (Working Capital) as the number that needs growing, by accepting trading as an acceptable, even conservative, approach to portfolio management, and by focusing on growing income instead of ego, this whole retirement investing thing becomes significantly less scary. So now you can focus on changing the tax code, reducing health care costs, saving Social Security, and spoiling the grandchildren.

About the author:
Steve Selengut
http://www.sancoservices.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

source:www.ezinefinder.com/

By: stapin

Investing in stocks is a risky business. There are some risks you have some control over and others that you can only guard against. Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.

However, other risks are inherent to investing you have no control over. Most of these risks affect the market or the economy and require investors to adjust portfolios or ride out the storm.

Here are four major types of risks that investors face and some strategies, where appropriate for dealing with the problems caused by these market and economic shifts.

Economic Risks One of the most obvious risks of investing is that the economy can go bad. Following the market bust in 2000 and the terrorists' attacks in 2001, the economy settled into a sour spell. A combination of factors saw the market indexes lose significant percentages.

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Winning Stock Pick Remember CKXE .10 to $30.00 30,000% Gain RRGI next ? futuresuperstock.net It has taken years to return to levels close to pre-9/11 marks. For young investors, the best strategy is often to just hunker down and ride out these downturns. If you can increase your position in good solid companies, these troughs are often good times to do so.

Foreign stocks can be a bright spot when the domestic market is in the dumps if you do your homework. Thanks to globalization, some U.S. companies earn a majority of their profits overseas.

Older investors are in a tighter bind. If you are in or near retirement, a major downturn in stocks can be devastating if you haven't shifted significant assets to bonds or fixed income securities.

Inflation Inflation is the tax on everyone. It destroys value and creates recessions. Although we believe inflation is under our control, the cure of higher interest rates may at some point be as bad as the problem.

Investors historically have retreated to "hard assets" such as real estate and precious metals, especially gold, in times of inflation.

Inflation hurts investors on fixed incomes the most, since it erodes the value of their income stream. Stocks are the best protection against inflation since companies have the ability to adjust prices to the rate of inflation.

It is not a perfect solution, but that is why even retired investors should maintain some of their assets in stocks.

Market Value Risk Market value risk refers to what happens when the market turns against or ignores your investment. This happens when the market goes off chasing the "next hot thing" and leaves many good, but unexciting companies behind.

Some investors find this a good thing and view it as an opportunity to load up on great stocks at a time when the market isn't bidding up the price.

On the other hand, it doesn't advance your cause to watch your investment flat-line month after month while other parts of the market are going up.

The lesson is don't get caught with all you investments in one sector of the economy. By spreading your investments across several sectors, you have a better chance of participating in growth of some of your stocks at any one time.

Too Conservative There is nothing wrong with being a conservative or careful investor. However, if you never take any risk it may be difficult to reach your financial goals. You may have to finance 15 to 20 years of retirement with your nest egg. Keeping it all in savings instruments may not get the job done.

Conclusion I believe if you learn about the risks of investing and do your homework on individual investments, you can make decisions that will help you meet your financial goals and still let you sleep at night.


Article written by Ken Little.
Types of Investing Risks
Stock Picks - Day Trade - stock picks - 1dayhold

Article Source: http://www.eArticlesOnline.com

By Steve Selengut

The reason people assume the risks of investing in the first place is the prospect of achieving a higher rate of return than is attainable in a risk free environment'i.e., an FDIC insured bank account. Risk comes in various forms, but the average investor's primary concerns are 'credit' and 'market' risk' particularly when it comes to investing for income. Credit risk involves the ability of corporations, government entities, and even individuals, to make good on their financial commitments; market risk refers to the certainty that there will be changes in the Market Value of the selected securities. We can minimize the former by selecting only high quality (investment grade) securities and the latter by diversifying properly, understanding that Market Value changes are normal, and by having a plan of action for dealing with such fluctuations. (What does the bank do to get the amount of interest it guarantees to depositors? What does it do in response to higher or lower market interest rate expectations?)

You don't have to be a professional Investment Manager to professionally manage your investment portfolio, but you do need to have a long term plan and know something about Asset Allocation' a portfolio organization tool that is often misunderstood and almost always improperly used within the financial community. It's important to recognize, as well, that you do not need a fancy computer program or a glossy presentation with economic scenarios, inflation estimators, and stock market projections to get yourself lined up properly with your target. You need common sense, reasonable expectations, patience, discipline, soft hands, and an oversized driver. The K. I. S. S. Principle needs to be at the foundation of your Investment Plan; an emphasis on Working Capital will help you Organize, and Control your investment portfolio.

Planning for Retirement should focus on the additional income needed from the investment portfolio, and the Asset Allocation formula [relax, 8th grade math is plenty] needed for goal achievement will depend on just three variables: (1) the amount of liquid investment assets you are starting with, (2) the amount of time until retirement, and (3) the range of interest rates currently available from Investment Grade Securities. If you don't allow the 'engineer' gene to take control, this can be a fairly simple process. Even if you are young, you need to stop smoking heavily and to develop a growing stream of income' if you keep the income growing, the Market Value growth (that you are expected to worship) will take care of itself. Remember, higher Market Value may increase hat size, but it doesn't pay the bills.

First deduct any guaranteed pension income from your retirement income goal to estimate the amount needed just from the investment portfolio. Don't worry about inflation at this stage. Next, determine the total Market Value of your investment portfolios, including company plans, IRAs, H-Bonds' everything, except the house, boat, jewelry, etc. Liquid personal and retirement plan assets only. This total is then multiplied by a range of reasonable interest rates (6%, to 8% right now) and, hopefully, one of the resulting numbers will be close to the target amount you came up with a moment ago. If you are within a few years of retirement age, they better be! For certain, this process will give you a clear idea of where you stand, and that, in and of itself, is worth the effort.

Organizing the Portfolio involves deciding upon an appropriate Asset Allocation' and that requires some discussion. Asset Allocation is the most important and most frequently misunderstood concept in the investment lexicon. The most basic of the confusions is the idea that diversification and Asset Allocation are one and the same. Asset Allocation divides the investment portfolio into the two basic classes of investment securities: Stocks/Equities and Bonds/Income Securities. Most Investment Grade securities fit comfortably into one of these two classes. Diversification is a risk reduction technique that strictly controls the size of individual holdings as a percent of total assets. A second misconception describes Asset Allocation as a sophisticated technique used to soften the bottom line impact of movements in stock and bond prices, and/or a process that automatically (and foolishly) moves investment dollars from a weakening asset classification to a stronger one' a subtle "market timing" device.

Finally, the Asset Allocation Formula is often misused in an effort to superimpose a valid investment planning tool on speculative strategies that have no real merits of their own, for example: annual portfolio repositioning, market timing adjustments, and Mutual Fund shifting. The Asset Allocation formula itself is sacred, and if constructed properly, should never be altered due to conditions in either Equity or Fixed Income markets. Changes in the personal situation, goals, and objectives of the investor are the only issues that can be allowed into the Asset Allocation decision-making process.

Here are a few basic Asset Allocation Guidelines:

(1) All Asset Allocation decisions are based on the Cost Basis of the securities involved. The current Market Value may be more or less and it just doesn't matter.
(2) Any investment portfolio with a Cost Basis of $100,000 or more should have a minimum of 30% invested in Income Securities, either taxable or tax free, depending on the nature of the portfolio. Tax deferred entities (all varieties of retirement programs) should house the bulk of the Equity Investments. This rule applies from age 0 to Retirement Age - 5 years. Under age 30, it is a mistake to have too much of your portfolio in Income Securities.
(3) There are only two Asset Allocation Categories, and neither is ever described with a decimal point. All cash in the portfolio is destined for one category or the other.
(4) From Retirement Age - 5 on, the Income Allocation needs to be adjusted upward until the 'reasonable interest rate test' says that you are on target or at least in range.
(5) At retirement, between 60% and 100% of your portfolio may have to be in Income Generating Securities.

Controlling, or Implementing, the Investment Plan will be accomplished best by those who are least emotional, most decisive, naturally calm, patient, generally conservative (not politically), and self actualized. Investing is a long-term, personal, goal orientated, non- competitive, hands on, decision-making process that does not require advanced degrees or a rocket scientist IQ. In fact, being too smart can be a problem if you have a tendency to over analyze things. It is helpful to establish guidelines for selecting securities, and for disposing of them. For example, limit Equity involvement to Investment Grade, NYSE, dividend paying, profitable, and widely held companies. Don't buy any stock unless it is down at least 20% from its 52 week high, and limit individual equity holdings to less than 5% of the total portfolio. Take a reasonable profit (using 10% as a target) as frequently as possible. With a 40% Income Allocation, 40% of profits and dividends would be allocated to Income Securities.

For Fixed Income, focus on Investment Grade securities, with above average but not 'highest in class' yields. With Variable Income securities, avoid purchase near 52-week highs, and keep individual holdings well below 5%. Keep individual Preferred Stocks and Bonds well below 5% as well. Closed End Fund positions may be slightly higher than 5%, depending on type. Take a reasonable profit (more than one years' income for starters) as soon as possible. With a 60% Equity Allocation, 60% of profits and interest would be allocated to stocks.

Monitoring Investment Performance the Wall Street way is inappropriate and problematic for goal-orientated investors. It purposely focuses on short-term dislocations and uncontrollable cyclical changes, producing constant disappointment and encouraging inappropriate transactional responses to natural and harmless events. Coupled with a Media that thrives on sensationalizing anything outrageously positive or negative (Google and Enron, Peter Lynch and Martha Stewart, for example), it becomes difficult to stay the course with any plan, as environmental conditions change. First greed, then fear, new products replacing old, and always the promise of something better when, in fact, the boring and old fashioned basic investment principles still get the job done. Remember, your unhappiness is Wall Street's most coveted asset. Don't humor them, and protect yourself. Base your performance evaluation efforts on goal achievement' yours, not theirs. Here's how, based on the three basic objectives we've been talking about: Growth of Base Income, Profit Production from Trading, and Overall Growth in Working Capital.

Base Income includes the dividends and interest produced by your portfolio, without the realized capital gains that should actually be the larger number much of the time. No matter how you slice it, your long-range comfort demands regularly increasing income, and by using your total portfolio cost basis as the benchmark, it's easy to determine where to invest your accumulating cash. Since a portion of every dollar added to the portfolio is reallocated to income production, you are assured of increasing the total annually. If Market Value is used for this analysis, you could be pouring too much money into a falling stock market to the detriment of your long-range income objectives.

Profit Production is the happy face of the market value volatility that is a natural attribute of all securities. To realize a profit, you must be able to sell the securities that most investment strategists (and accountants) want you to marry up with! Successful investors learn to sell the ones they love, and the more frequently (yes, short term), the better. This is called trading, and it is not a four-letter word. When you can get yourself to the point where you think of the securities you own as high quality inventory on the shelves of your personal portfolio boutique, you have arrived. You won't see WalMart holding out for higher prices than their standard markup, and neither should you. Reduce the markup on slower movers, and sell damaged goods you've held too long at a loss if you have to, and, in the thick of it all, try to anticipate what your standard, Wall Street Account Statement is going to show you' a portfolio of equity securities that have not yet achieved their profit goals and are probably in negative Market Value territory because you've sold the winners and replaced them with new inventory' compounding the earning power! Similarly, you'll see a diversified group of income earners, chastised for following their natural tendencies (this year), at lower prices, which will help you increase your portfolio yield and overall cash flow. If you see big plus signs, you are not managing the portfolio properly.

Working Capital Growth (total portfolio cost basis) just happens, and at a rate that will be somewhere between the average return on the Income Securities in the portfolio and the total realized gain on the Equity portion of the portfolio. It will actually be higher with larger Equity allocations because frequent trading produces a higher rate of return than the more secure positions in the Income allocation. But, and this is too big a but to ignore as you approach retirement, trading profits are not guaranteed and the risk of loss (although minimized with a sensible selection process) is greater than it is with Income Securities. This is why the Asset Allocation moves from a greater to a lesser Equity percentage as you approach retirement.

So is there really such a thing as an Income Portfolio that needs to be managed? Or are we really just dealing with an investment portfolio that needs its Asset Allocation tweaked occasionally as we approach the time in life when it has to provide the yacht' and the gas money to run it? By using Cost Basis (Working Capital) as the number that needs growing, by accepting trading as an acceptable, even conservative, approach to portfolio management, and by focusing on growing income instead of ego, this whole retirement investing thing becomes significantly less scary. So now you can focus on changing the tax code, reducing health care costs, saving Social Security, and spoiling the grandchildren.

About the author:
Steve Selengut
http://www.sancoservices.com
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

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