All about investment

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 Steve Selengut

I've come to the conclusion that the Stock Market is an easier medium for investors to understand (i.e., to form behavioral expectations about) than the Fixed Income Market. As unlikely as this sounds, experience proves it, irrefutably. Few investors grow to love volatility as I do, but most expect it in the Market Value of their equity positions. When dealing with Fixed Income Securities however, neither they nor their advisors are comfortable with any downward movement at all. Most won't consider taking profits when prices increase, but will rush in to accept losses when prices fall.

Theoretically, Fixed Income Securities should be the ultimate Buy and Hold; their primary purpose is income generation, and return of principal is typically a contractual obligation. I like to add some seasoning to this bland diet, through profit taking whenever possible, but losses are almost never an acceptable, or necessary, menu item. Still, Wall Street pumps out products and Investment Experts rationalize strategies that cloud the simple rules governing the behavior of what should be an investor's retirement blankie. I shake my head in disbelief, constantly. The investment gods have spoken: 'The market price of Fixed Income Securities shall vary inversely with Interest Rates, both actual and anticipated' and it is good.'

It's OK, it's natural, it just doesn't matter, I say to disbelieving audiences everywhere. You have to understand how these securities react to interest rate expectations and take advantage of it. There's no need to hedge against it, or to cry about it. It's simply the nature of things. This is the first of three successive articles I'll be writing about Fixed Income Investing. If I don't improve your comfort level with this effort, perhaps the next one will strike the proper chord.

There are several reasons why investors have invalid expectations about their Fixed Income investments:
(1) They don't experience this type of investing until retirement planning time and they view all securities with an eye on Market Value, as they have been programmed to do by Wall Street.
(2) The combination of increasing age and inexperience creates an inordinate fear of loss that is prayed upon by commissioned sales persons of all shapes and sizes.
(3) They have trouble distinguishing between the income generating purpose of Fixed Income Securities and the fact that they are negotiable instruments with a Market Value that is a function of current, as opposed to contractual, interest rates.
(4) They have been brainwashed into believing that the Market Value of their portfolio, and not the income that it generates, is their primary weapon against inflation. [Really, Alice, if you held these securities in a safe deposit box instead of a brokerage account, and just received the income, the perception of loss, the fear, and the rush to make a change would simply disappear. Think about it.]

Every properly constructed portfolio will contain securities whose primary purpose is to generate income (fixed and/or variable), and every investor must understand some basic and 'absolute' characteristics of Interest Rate Sensitive Securities. These securities include Corporate, Government, and Municipal Bonds, Preferred Stocks, many Closed End Funds, Unit Trusts, REITs, Royalty Trusts, Treasury Securities, etc. Most are legally binding contracts between the owner of the securities (you, or an Investment Company that you own a piece of) and an entity that promises to pay a Fixed Rate of Interest for the use of the money. They are primary debts of the issuer, and must be paid before all other obligations. They are negotiable, meaning that they can be bought and sold, at a price that varies with current interest rates. The longer the duration of the obligation, the more price fluctuation cycles will occur during the holding period. Typically, longer obligations also have higher interest rates. Two things are accomplished by buying shorter duration securities: you earn less interest and you pay your broker a commission more frequently.

Defaults in interest payments are extremely rare, particularly in Investment Grade Securities, and it is very likely that you will receive a predictable, constant, and gradually increasing flow of Income. (The income will increase gradually only if you manage your asset allocation properly by adding proportionately to your Fixed Income holdings.) So, if everything is going according to plan, all that you ever need to look at is the amount of income that your Fixed Income portfolio is generating' period. Dealing with variable income securities is slightly different, as Market Value will also vary with the nature of the income, and the economics of a particular industry. REITs, Royalty Trusts, Unit Trusts, and even CEFs (Closed End Funds) may have variable income levels and portfolio management requires an understanding of the risks involved. A Municipal Bond CEF, for example will have a much more dependable cash flow and considerably more price stability than an oil and gas Royalty Trust. Thus, diversification in the income-generating portion of the portfolio is even more important than in the growth portion' income pays the bills. Never lose sight of that fact and you will be able to go fishing more frequently in retirement.

The critical relationship between the two classes of securities in your portfolio, is this: The Market Value of your Equity Investments and that of your Fixed Income investments are totally, and completely unrelated. Each Market dances to it's own beat. Stocks are like heavy metal or Rap'impossible to predict. Bonds are more like the classics and old time rock-and-roll'much more predictable. Thus, for the sake of portfolio smile maintenance, you must develop the ability to separate the two classes of securities, mentally, if not physically. For example, if your July 2005 Market Value fell, it was because of higher interest rates not lower stock prices. More recently, the combination of higher rates and a weaker Stock Market has been a Double Whammy for portfolio Market Values, and a double bonanza for investment opportunities. Just like at the Mall, lower securities prices are a good thing for buyers' and higher prices are a good thing for sellers. You need to act on these things with each cyclical change.

Here's a simple way to deal with Fixed Income Market Values to avoid shocks and surprises. Just visualize the Scales of Justice, with or without the blindfold. On one side we have a number that represents the Current Market Value of your Fixed Income portfolio. On the other side, we have a small 'i' for interest rates, and 'up' or 'down' arrows that represent interest rate directional expectations. If the world expects interest rates to rise, or even to stop going down, 'up' arrows are added to 'i' and the Market Value side moves lower' the current scenario. Absolutely nothing can (or should) be done about it. It has no impact at all on the contracts you hold or the interest that you will receive; neither the maturity value nor the cash flow is affected' but your broker just called with an idea.

The mechanics are also simple. These are negotiable securities that carry a fixed interest rate. Buyers are entitled to current rates, and the only way to provide them on an existing security is to sell it at a discount. Fortunately, one rarely has to sell. Over the past few years of falling interest rates, Fixed Income securities have risen in price and investors (should) have realized capital gains as a result'adding to portfolio income and Working Capital. Now, that trend has reversed itself and you have the opportunity to add to existing holdings, or to buy new securities, at lower prices and higher interest rates. This cycle will be repeated forever.

So, from a 'let's try to be happy with our investment portfolio because it's financially healthier' standpoint, it is critical that you understand changes in Market Value, anticipate them, and appreciate the opportunities that they provide. Comparing your portfolio Market Value with some external and unrelated number accomplishes nothing. Actually, owning your fixed income securities in the most freely negotiable manner possible can put you in a unique position. You have no increased risk from a reduction in security prices, while you gain the ability to add to holdings at higher yields. It's like magic, or is it justice. Both sides of the scales contain good news for the investor' as the investment gods intended.

About the author:
Steve Selengut
sanserve@aol.com
800-245-0494
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 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