Relief From Market Swings
By Laurie Bachelder
Diversification is a familiar term to most investors. In the most general term, it can be summed up with the phrase: "Don't put all of your eggs in one basket." Certainly that statement depicts the essence of the issue, but it affords little guidance or insight into how to assemble a true diversified portfolio. The lack of education regarding true diversifications is a predominate issue for many investors.
Diversification is key aspect of a solid investment strategy. To diversify means to spread your portfolio over many types of investments and over different specific investments within each category. Although many Financial Advisors will advise it, diversifying across many mutual funds or across shares in many sectors is NOT true diversification. Modern Portfolio Theory tells us that holding a well-diversified 'basket' of investments can be one of the best ways for individual investors to reduce risk for a given level of performance. But a portfolio comprised of only stocks, bonds and mutual funds may not be enough to provide true diversification.
Many investors that primarily invest in mutual funds incorrectly believe that by investing in two or more mutual funds, they increase the level of diversification in their portfolios. Make note that most stock mutual funds own dozens or even hundreds of individual stocks. The added diversification benefit you get from adding yet another stock to your portfolio becomes less significant as the number of stocks you own grows. For instance, you might benefit greatly by increasing the number of stocks you hold from 4 to 20, but going from 100 to 200 may not have as great of an impact. Another consideration, many mutual funds may own exactly the same securities. For example, if you own an S&P 500 index fund and a mutual fund that focuses on large-cap technology companies, the odds are that both of them will own big tech stocks. As we state earlier, we can sum up diversifation as "Don't put all your eggs in one basket". But there are several different types of diversification to take into consideration. For the most part investors do a good job of identifying the most basic needs for different investments; they don't always succeed in reducing the risk that comes with assets whose prices tend to move in similar directions.
A Non-Correlated Portfolio: True Portfolio Diversification
The Modern Portfolio Theory says that the risk of any investment can be reduced and/or performance increased by forming a portfolio of diverse and non-correlated assets. Simply put, a truly diversified portfolio contains not only a range of different asset types, but also assets that have low correlations to one another. Constructing your portfolio this way will reduce the likelihood that your assets will move in tandem, which can be especially important when the broader markets may be down and diversification may be most needed.
Alternative assets may be a good way to diversify a portfolio due to their low correlation to stock market performance. For this they have become one of the fastest-growing sectors in the investment arena. Alternative investments can provide qualified investors viable options to the stock market and may help respond to different market conditions.
Some alternative investments have shown strong historical performance against the markets. But as with all investments it is important to remember that past performance is not a guarantee of future results. A key point is that some have historically proven to have low correlation with broader market activity, including stocks and bonds. For this historical low correlation, alternative investments may be an attractive addition to traditional portfolios. Integrating alternative investments into a portfolio may have diversification benefits. For the right investor, allocating a portion of your overall portfolio to alternative investments may help create a portfolio with the potential for improved performance in both bull and bear markets. (Please note, correlations may change over time. Not all alternative investments provide low correlation to traditional markets).
So, what is an alternative investment? Many have their own definition of an alternative investment. Someone who is ultra conservative might consider stocks and mutual funds to be alternative investments when compared with fixed-income investments such as bonds or fixed annuities. On the other end of the spectrum, a very sophisticated investor may not consider the well-known alternative investments, such as hedge funds, futures, and options to be alternative, since they may deal with them all the time.
Here we will define the term "alternative investment" as any investment in which a successful performance does not depend on continued upward movement in the stock market.
A basic list of so-called alternative investments may include: options, futures, and precious metals. In addition, the following would be considered alternative investments: hedge funds, managed futures funds, private equity offerings, and other funds that use derivatives. But with a few exceptions like life insurance and collectibles, the list of alternative investments allowable in a tax deferred retirement account are almost endless*.
Examples of Alternative Investments for a SDRA*-
· Residential/Commercial Real Estate
· Foreclosures
· Business Start ups
· Franchises
· Tax liens, business loans, and mortgages
· LLC's
· Private Stock Offerings
Other examples of use for a SDRA*-
· Raise private capital
· Private mortgage lending
· Invest in a friends venture
· Lend money to a local developer
· Pool funds with others for a larger investment
· Invest in what YOU know
In conclusion, this overview of diversification and the importance of alternative investments isn't intended to discourage equity investments-but to argue for a more balanced, well rounded, and non-correlated portfolio of investments. Investors wanting to diversify his or her portfolio with alternative investments are strongly encouraged to seek the expertise of professionals that specializes in the SDRA market.
*Some restrictions apply. It is important to consult with a professional regarding IRC Pub 590 regarding regulations before investing. Securities offered through USWA, LLC, Member FINRA/SIPC, and advisory services through USFA, LLC, a registered investment advisor. USWA/USFA is not an affiliate of CMS.
Capital Market Solutions, LLC ("CMS") is a full service Financial Service Firm who is bridging the gap between traditional and non-traditional investing. They advise investors on ALL the investment opportunities that exist today for their retirement accounts. At CMS (through USWA), clients have the option to invest in tradition investments such as stocks, bonds, and mutual funds to name a few. But CMS takes it one step further by also advising clients on non-traditional investments-something most banks, brokerage firms and other IRA sponsors won't permit you to do**. For more information you can visit http://www.capitalmarketsolutionsllc.com
Trading Discipline - its The Key to Huge Profits acquire it the Easy Way
by kelly price
If you read any material from the great traders you will hear them tell you that discipline is the key to forex profits. If you don't have it - you won't win and most of the 95% that lose fail to acquire it.
This trading tip is all about acquiring it the easy way and trading for huge profits.
A simple equation for market success is:
A logical trading system + Understanding = Confidence = Discipline
Sounds simple? It is - but most traders fail to understand it and its significance.
Lets look at some common mistakes made by forex traders.
Most new traders use illogical systems.
For example, they try and day trade and that's a guaranteed way to lose as the logic is ill founded. Other think you need to predict to win but you cant predict what will happen in the future - again the logic is wrong.
Other fail to understand how and why their trading system works.
They simply follow a guru or mentor and expect to win with no losing periods.
In the real world, they get some losses, they don't understand why and confidence goes and discipline breaks down.
Others think the cleverer they are and the more computer power they have the more likely they are to win.
Again this is not true.
Computers are more powerful today than the one that Mission Control used to land man on the moon - yet the ratio of traders that lose remains the same - 95%
Don't be fooled - the key to forex trading success is not the system but the trader and his attitude; discipline is the key just as it has been since trading began.
So you can see the first building blocks are:
Get a simple logical system that can get the odds in your favour.
If you build it yourself or follow someone else you MUST know how and why it works or you will never acquire confidence in your trading system.
If you don't have confidence that it will win eventually, you won't have the discipline to follow it through losing periods - it's as simple as that.
Today traders think someone else can lead them to success.
They need to learn that no one else will make them successful - only they can make themselves a winner.
Others are duped by vendors telling them they can make a regular income or pick tops and bottoms with scientific accuracy - Rubbish! If only trading were that simple.
If all those trader claiming that they could make such great gains really could, they would be to busy trading and making millions to sell it to you.
No trading success and discipline comes from within from understanding flows confidence and from confidence flows discipline.
If you don't have the discipline to follow your method you have no method!
The above is obvious - but most traders still look for the short cut, the guru or the far out trading system that will make them instantly rich or with no effort - but they all learn a harsh lesson - a wipe out.
If you are not prepared to learn forex trading and get the right forex education don't bother do something else as you will lose.
The Good News Is:
Anyone has the potential to learn how to trade and acquire discipline but you must do your homework and understand no one else can give you confidence and discipline it comes from within.
So do your homework and learn a system you can have confidence in and discipline will follow - it really is that simple.
About the Author
NEW! PROFESSIONAL FOREX COURSE AND FREE TRADING PDF's
For free trading guides and an exclusive Forex Trading Course visit our website at: http://www.learncurrencytradingonline.com/index.html
Read More......Keep Your Portfolio in Balance With an Annual Review
by: John Petrick
Your target asset allocation, or the mix of stocks and bonds you have chosen to pursue your investment goals, provides the foundation for your financial plan. However, even the most appropriate asset allocation may be driven off track by a number of factors, including bouts of market volatility. Given the turbulence that has prevailed over the stock market during much of 2007, now may be an ideal time to determine whether recent market performance has affected your asset allocation’s “balance."
A portfolio review should be an integral part of an annual financial review that examines all aspects of your financial life — from income and expenses to college and retirement planning, taxes and estate plans. The goal of such a comprehensive review is to identify any important changes in your life and plan accordingly for the coming year.
The first step in conducting a ,is to calculate the percentage of your assets that is invested in stocks, bonds and other asset classes. Next you will need to decide whether you are comfortable with those allocations or whether you need to “rebalance" your investment mix to bring the allocations back to their original intended targets.
For instance, suppose that your portfolio is currently a mix of 70% stocks and 30% bonds, but you’d prefer a 60/40 mix. One way you could adjust your allocations would be to sell some of your stock investments to attain the desired 60% allocation. Or you could do the opposite and add more bonds to your portfolio. Keep in mind that there may be taxes, fees and strategic considerations associated with either option, so be sure to consult with a trusted investment and/or tax professional before making any decisions.
Portfolio Drift: An Example
To illustrate how investment performance can affect a portfolio over time — pushing it more and more out of sync with its original allocations — consider what would have happened to a hypothetical portfolio left unbalanced for the 20 years ended June 30, 2007. What began as a 70% allocation to U.S. stocks would have grown to 83.31% of the portfolio, while 10% allocations to government bonds, foreign stocks and money market instruments would have shrunk, reducing their intended risk reduction role in the portfolio.1
Bonds haven’t been as volatile as stocks over long periods of time, but recent history shows that they too can experience performance patterns that may alter asset allocation. Consider the divergence of the stock and bond markets between 2000 and 2002 and how that may have affected asset allocations. While the S&P 500 returned -9.1% in 2000,
-11.9% the following year and -22.1% in 2002, long-term
Likewise, the performance dynamics of various styles of equities — e.g., small-cap stocks, foreign stocks, growth and value stocks — can effect your overall asset allocation when left unchecked. As an example, large-cap value stocks have outperformed large-cap growth stocks by an annualized pace of about 12% since March of 2000 (as measured by Russell 1000 Growth and Russell 1000 Value). This seven-year run would have left a portfolio that has not been rebalanced tilting heavily toward value stocks — and positioned poorly in terms of performance and risk — as the cycle shifts back toward growth.
Life and Lifestyle Changes
Market volatility is not the only factor that may cause you to rethink and rebalance your investment mix. Any new circumstances in your life or changes in your lifestyle may necessitate a reshuffling of assets.
For example, getting married and starting a family are two events that are likely to create a whole new set of high-priority financial needs. Or maybe your change was of a different nature: Did you get divorced, take a new job or embark on an entirely new career? Have you experienced a financial windfall? Did a loved one pass away? Maybe one of your children got married. Or perhaps you’ve become a grandparent. Each of these events — and others like them — will probably require you to reevaluate and enhance each of your strategies for pursuing all-around financial well being.
How often should you rebalance? The usual answer is anytime your goals change; otherwise, at least once a year. However, to keep close tabs on your investment plan and make sure it doesn’t drift far from your objectives, you and your advisor may prefer to set a percentage limit of variance, say 5% on either side of your intended target, that would trigger a review and possible rebalancing.
Working Together Toward Your Goals
Although rebalancing your portfolio can be challenging, it is generally the best way to stay focused on stated goals. By working closely with a trusted advisor who understands your life goals and offers ongoing advice in support of those goals, you will have a much better chance of keeping your financial plans on track — whatever life or the investment markets send your way.
1Sources: Standard & Poor’s; Morgan Stanley Capital International; Lehman Brothers; Federal Reserve. Domestic stocks are represented by the total returns of the S&P 500; foreign stocks by the Morgan Stanley Capital International Europe, Australasia, Far East (EAFE®) Index; bonds by the Lehman Brothers Aggregate Bond Index; and money market funds by the Lehman Brothers 3-Month Treasury Bill Index. All are unmanaged indexes. Investors cannot invest directly in any index. Past performance does not guarantee future results.
2Source: Lehman Brothers. Represents the total returns of the Lehman Long-Term Government Bond Index.
There is not guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk.
Stock investing involves risk including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.
This article is not intended to provide specific advice or recommendations for any individual. Consult your financial advisor, with questions. John Bennett Petrick and the representatives of Perennial Financial Services are registered representatives with and offering securities through Linsco/Private Ledger (LPL) Member NASD/SIPC. Linsco/Private Ledger representatives offer access to Trust services through The Private Trust Company N.A., an affiliate of Linsco/Private Ledger Corp. CA Insurance License #0E03441source:searchwarp.com/
Read More......
Trading platinum using CFDs
by: Mike Estrey
In our daily reports, we comment on the background and outlook for the gold price, but from time to time we refer to other precious metals. One of these that can be traded using CFDs is platinum, and various contracts are available, as well of course as companies with interests such as Johnson Matthey and Aquarius Platinum, which have long appealed to stock market investors.
The metal itself
As gold is rare than silver, so platinum is around 35 times rarer than gold and is less widely found. Its main exploration areas are South Africa and Russia, and then Zimbabwe, Canada and South America.
Less than 90 tonnes of platinum are turned into jewellery, compared with 2,700 tonnes of gold, and it takes eight weeks and ten tonnes of ore to produce an ounce of platinum, against three tonnes mined to produce the same amount of gold. The current price (as shown by the January 2008 CFD) is $1401 per ounce, which is very close to an all time high.
Uses of platinum
Platinum has several unique properties which have led to its increasing industrial use, aswell as for jewellery. It is found in the automotive, aerospace, electronics and chemical industries, most notably in catalytic converters, where Johnson Matthey is a world leader.
It also has major uses in medicine, as it is not affected by the oxidisation reaction with blood. It has excellent conductivity, and is compatible with living tissue, making it ideal for use in pacemakers.
Its density makes it more durable than many other metals, and is extremely inert, being resistant to heat and acids with a melting point of 1,768C.
From a jewellery standpoint, the metal does not wear away, and although it can scratch, this is simply a displacement of the metal with no volume lost, which is not the case for gold.
Despite its super strength and density, platinum is highly pliable, and one gram can be drawn to produce a fine wire over a mile in length.
The outlook
Platinum is enjoying a major bull market in line with the rest of the precious metals sector. The usual supply demand arguments apply, with the long lag in developing new mine capacity being one of the main reasons why the sector is expected to continue to be rerated, aswell of course of the simple rarity value in a world of expanding demand.
From that demand point of view the outlook remains extremely positive, and the three biggest markets are now China, Japan and North America.
The bridal sector is an important market for jewellery, as in Japan platinum is still used in almost all engagement rings and over 80% of wedding rings. In the USA, platinum's share of the bridal market was non-existent twenty years ago, but is approaching 50% now.
Fuel cell technology
There has been a dramatic interest in fuel cell technology mainly as a result of increasing concerns about environmental degradation. Fuel cells do not burn fuel, which eliminates the air pollution associated with fossil fuels.
Almost all prototype fuel cell vehicles are powered by the proton exchange membrane fuel cell, which uses platinum as the primary catalyst, and all major automobile companies have expanding fuel cell programmes.
Demand is so far quite small, but the expectation is for gradual medium to long term growth, first in stationary fuel cells and later with the commercialisation of fuel cell vehicles.
Mike Estrey is the Head of Research for Blue Index, specialists in Online CFD Trading, Contracts for Difference and Online Forex Trading.
