Step One- Asset Allocation

To begin you must take a close look at your own personal financial situation and determine what your investment goals are. You must take into consideration your age, how much money you have to invest, your future financial needs and how much time you have to build your investments. A 24 year old single individual fresh out of university will need to devise a very different investment strategy than will a 45 or 50 year old married individual trying to pay off a mortgage and getting ready to send a son or daughter off to college.

You also need to consider your risk tolerance as well as your personality. Are you a big risk taker or a little one? Are you willing to invest and take the risk knowing that you could lose but could also reap greater returns or does that make you shudder inwardly? Both of these items are connected and play a role in which type of investments you should select.

Once you are aware of your present situation as well as your future requirements for capital and your risk tolerance you will then be able to decide which asset classes you should allocate for your investments. Risk/return tradeoff is the name given to the principle of the possibility of greater returns at the expense that comes with the greater risk of losses. This is different for everyone.

Are You a Conservative or Aggressive Investor?

The more risk you are willing to bear in terms of your portfolio the more aggressive investor you are. If this describes you then you should concentrate more of your attention on equities and less on bonds and other types of fixed-income securities. On the other hand, the less risk you are willing to bear, the more conservative will your portfolio be. You must define yourself as an investor.

The primary goal of a portfolio that is conservative is to protect the value of it. An example of such a portfolio includes 70 to 75 percent fixed income securities, 15 to 20 percent equities and 5 to 15 percent cash and equivalents.

An aggressive or moderately aggressive portfolio is geared towards those who have an average risk tolerance. The goal of this type of portfolio is to strike a balance between income and capital growth. It might look something like this- 50 to 55 percent equities, 35 to 40 percent fixed income securities and 5 to 10 percent cash and equivalents.

Step Two- Achieving the Portfolio You Desire

After you do what is required in step one, which is to determine the proper asset allocation for your portfolio you then need to divide the capital you have amongst the asset classes you have chosen. On a very elementary level that means breaking down bonds into the bond class and equities into the equity class, etc.

You can also take it one step further and break down asset classes into subclasses that come with different types of risks and different potential returns. For instance you might take your equities and divide them between different sectors and market caps. You also might divide them between domestic stock and foreign stock.

There is more than one way to select the assets and securities that will satisfy the asset allocation strategy you have chosen. It is important that you analyze both the potential as well as the quality of every investment before you purchase it.

Stock picking is one option. You should select stocks that are in line with the amount of risk you are willing to take in the equity section of your investment portfolio. Consider such factors as stock type, market cap and sector. Make use of stock screeners to analyze companies and then create a shortlist of your top choices. If you go this route then you must regularly monitor the price changes that occur in your holdings as well as to keep up-to-date on the latest news in the industry.

Bond picking is another option. When selecting bonds consider such important things as the bond type, the bond rating, coupon, maturity and the general interest rate environment.

As far as mutual funds are concerned, be aware that they are available for a vast range of asset classes. Mutual funds make it possible for you as an investor to have both stocks as well as bonds that are well researched and chosen by professional fund managers.

If you do not wish to invest your money in mutual funds then exchange-traded funds (ETFs) are another alternative worth considering. ETFS are comparable to mutual funds that can be traded like stocks. They represent a large assortment of stocks that are generally grouped together by capitalizations, sector and country. However ETFs are not actively managed but what they do instead is they track a chosen index or other assortments of stocks. ETFs can cover a wide range of assortment classes and are an excellent means of rounding out a portfolio.

Step Three- Taking the Time to Reassess Portfolio Weightings

After your portfolio has been established it then becomes time to analyze and rebalance it on a periodic basis. You need to do this because movements in the market can sometimes cause the initial weightings you have to change. In order to assess the actual asset allocation of your portfolio you need to quantitively categorize all of your investments as well as to figure out the value proportions in relation to the whole.

Over time other things can change as well. Your financial situation can change as well as your future need for capital and your risk tolerance. These things can change at different times throughout an investor’s life. When any of these things become altered you need to adjust your portfolio to reflect these changes. For example, if your risk tolerance has gotten lower then you may have to reduce the number of equities you have.

To rebalance your portfolio you must figure out which of the positions you hold are overweighted and which are underweighted. To use an example, if 30 percent of your current assets are in small-cap equities and your asset allocation says that you should have approximately 15 percent of your assets in this class then you need to rebalance. When you rebalance you take a close look at your position and from there figure out what you need to reduce and what needs to be allocated to different classes.

Step Four- Doing a Strategic Rebalancing Act

By the time you reach this step you know which securities you require and which ones need to be reduced and by how much the reduction must be. You also know which securities are overweighted and underweighted.

When you decide to sell some of your assets in order to rebalance your portfolio consider the tax implications this brings with it. You also need to consider what the outlook of your investment securities are. If you have reason to believe that you have overweighted growth stocks that are about to drop then it might be in your best interests to sell some of them even if the tax implications say otherwise. To gauge the outlook it helps to look to research reports as well as listen to the opinions of financial analysts.

Investment Diversification Matters

Always bear in mind this rule of thumb for building a profitable portfolio- diversify as much as possible. If you don’t put all of your eggs in one basket then you are in a much stronger position investment wise. Always maintain diversification. Having securities from each asset class is important but it is not enough. Instead you must diversify within each asset class. Take the holdings you have in an asset class of your choice and spread them across a variety of subclasses as well as sectors of industries.

To achieve the diversification you need to be as profitable as possible and to see your money grow it is wise to use both mutual funds as well as exchange-traded fund (ETFs). These will make it possible for you as an individual and average investor to see the economies of scale that characterize large fund investors.

To be an investor is one thing but to be a conservative investor is something else all together. The conservative individual is traditional and likes to stick with the tried and true. As well he/she likes stability and is more in favor of gradual development as opposed to abrupt change.

When the word conservative is used in relation to investing the vast majority of individuals believe that it is all about placing your money into the most stable and largest enterprises around. This then guarantees that the principal will remain as safe as possible. If the capital that has been invested in this case appreciates then this is even better for the investor, it is more than trading a stock .

While many enterprises are described as being conservative in their investing practices, such as utilities for example, it is important to note that simply purchasing a big and well known company does not automatically make the investment diversification approach successful from a conservative point of view. There is a difference between acting in a conservative manner and behaving in a conventional manner.

Conservative Investment vs. Conservative Investing

A conservative investment is not the same as conservative investing. Many people mix up the two and think that the terms are interchangeable but they are not. It is worth noting that conservative investing is not a strategy that is low in risk and low in return. In order to be able to invest conservatively you must know the difference between a conservative investment and conservative investing.

A conservative investment is one in which the greatest likelihood of retaining the buying power of capital comes with the smallest degree of risk. On the other hand, conservative investing is understanding what a conservative investment is and what it entails. From there it is following a particular course of action that must be put into play in order to ascertain whether or not the investment you are considering is a conservative one or not.

Many investors make errors when it comes to investing conservatively because they assume incorrectly that any security that is deemed a conservative investment makes them conservative investors. To put this in even simpler language, these types of investors focus their attention on the first definition (the conservative investment) and disregard the second.

Taking this viewpoint is very limiting in nature and it is also costly in a monetary way. A conservative investment approach that is successful necessitates that the investor thoroughly understand what a conservative investment is but even more significantly, understand what the suitable approach is to be able to identify what makes a conservative investment such and what does not make a conservative investment.

A Closer Look at a Conservative Investment

If an investor knows what qualifies an investment to be a conservative one then the next step is to be aware of what the characteristics of a conservative investment are. This is where the definition and discussion of conservative investing comes into play. When identifying a conservative investment there are three categories that an investor must examine. They include the safety factor, the people factor and the characteristics of the business. Let us explore at one of these now.

The Safety Factor

A conservative investment must be able to weather the rise and fall of the financial markets better than all of the rest. In order for it to do this there are certain types of characteristics that must figure prominently. One of the most significant is that the business or company should have production that is low in cost. The greatest advantage of being a low-cost producer is that when there is a bad year financially it is still possible that a profit can be made and that a smaller net loss will be reported and be very much available.

It is also essential that a company have a research and marketing department that is strong and very aware of what is going on. Any company that is not able to compete by staying on top of the changes in the markets and being aware of the current trends will fail, perhaps not in the short-term but definitely in the long-term.

The management of a company needs to have as much financial skill as possible; the more that they have the more it works in their favor. Possessing much skill in this area means that they are well acquainted with items such as maximizing return on investment capital, per unit cost of production and other necessary elements of the success of a business.

The People Factor

To qualify as a conservative investment the people factor plays an integral role as well. It is important however that the excellence of the people in a company does not come into play until the business has been able to demonstrate that it possesses all of the signs that nave been described previously in the safety factor.

A company that is small can still become successful as long as it is run by one or two individuals who are very talented and are focused and know exactly what they are doing. However as time passes and the company grows the people within it must be counted if the business is to become even stronger and more successful. This will allow it to continue to be a conservative investment.

Characteristics of the Business

There is yet a third quality of a conservative investment to discuss. It is that of the characteristics of the business. This requires more work for the investor but it is work that is well worth it. The goal for investors is to decide what the advantages and disadvantages are that may inhibit the business from growing and from bringing in greater profits even if the first two conditions- the safety factor and the people factor- are met.

One thing that all investors must think about is the “competitive landscape of the business.” How many competitors a company has and/or how simply and easily new competition can enter the picture can affect any business. The potential in this regard for excessive regulation can alter circumstances which can make a difference. When evaluating a conservative investment you should determine whether it first satisfies the safety factor, as well as the people factor. Once those conditions are as they should be then you should consider the third condition which is the characteristics of the business.

Some businesses pass the conservative investment test while others unfortunately do not. It is not always how how often a stock splits, although many beginners are attracted by splits . Some examples of well-known companies that have passed and continue to thrive include Coca-Cola, Johnson & Johnson and Wal-Mart. All of these popular companies which are very well-known have shown time and time again that their franchises are very strong and grow stronger with time. This has a great deal to do stock prices and the value behind them.

Gold as a Currency

Gold has traditionally been a means of storage of wealth and has been used as a currency for much longer than paper currencies themselves. Nevertheless, returning to the gold standard presents a problem because of the small amount of physical gold available versus the huge amount of paper money now in circulation.

As a case in point, the total amount of gold which has been mined on the planet has been estimated to only be approximately 142,000 metric tons. If you use $1,000 an ounce as an example gold price, this would imply that the total value for all the gold ever mined would be just $4.5 trillion.

How its Relationship to Gold Affects a Currency

To put this in perspective, the United States alone has over $8 trillion in Federal Reserve Notes in circulation or on deposit. This seemingly high amount has largely arisen due to the fact that the U.S. Dollar is a fiat currency that is only backed by “the full faith and credit of the U.S. Government” and not by something intrinsically valuable like gold or silver.

Also contributing to what seems to be excessive overprinting of the U.S. Dollar is the fact that fractional reserve banking is permitted in the United States with the fraction set by the privately-owned Federal Reserve Bank. This allows banks to lend out a multiple of the amount they are required to hold in reserve that can be as large as a factor of ten.

Other factors have also contributed to this discrepancy which has grown over time since former U.S. President Richard Nixon unilaterally took the U.S. Dollar off of the gold standard in the early 1970s. The last national currency which had full convertibility to gold until the year 2000 was the Swiss Franc. This enhanced its reputation as a safe haven currency in times of trouble.

Holding Gold in Reserve

Gold is currently held in reserve by most of the world’s central banks as a way of defending the value of their currency. Nevertheless, only an estimated 19% of all above-ground gold is held in this capacity by central banks.

Furthermore, the U.S. Dollar has been the world’s premiere reserve currency for an extended period. Nevertheless, the value of the dollar has been gradually deteriorating due to inflation and investing in gold is typically used as a hedge against the dropping value of the U.S. Dollar.

The best growth stocks should provide hints of potential and margin of safety to its investors. They also should fall under these conditions:

·    Impressive or substantial growth rate

Which would you rather choose to invest in – a company with fast growth or a company with slow growth? Any kind of growth is good as long as the company is growing. A small percentage is already a big deal to investors, how much more if the growth is awesomely substantial? It will pay to find the fastest-growing stock in any industry – and it will be good to be riding on this growth as an investor.

·    Sustainable investments

Now, the company is growing, but you should not overlook one very important matter – will this company able to sustain this growth for a long period of time? It is therefore important to pay attention to the competitiveness of a company aside from the growth rate, as this will propel it further into further growth.

·    Good price for investment

Before finally purchasing a stock, be sure that it is fairy priced. Many people commit the mistake of paying huge sums of money to buy stocks in a company based on its growth rate. It could come to a point where you find it hard to get a decent profit despite continuous company growth because of the steep price you paid initially.

There is money to be made the stock market, but you must not be foolish, Stock market investing is not gambling although many people think so. There isn’t any big secret to investing. It is a matter of proper research and analysis of companies you potentially want to invest your money with. Buying stocks is not like buying lotto tickets, but with diligent methodology you can be successful in stock market investing. We will post articles in the coming weeks and months that may help you with strategies and principles to help you be successful.

Depending on the performance of an individual stock your potential return could double or could quickly become worthless. Volatility then defines the degree to which a value of an investment tends to fluctuate over time.

One basic principle of investing for the beginner or the veteran stock picker, risk and volatility go hand in hand with investment returns, the higher the risk, the higher its volatility and potential returns. Investments with high risk and volatility have a greater chance of losing value is held over shorter periods of time, say less than five years. The effect or chance of a stock increasing in value over longer periods of time worked the same way.

Risk tolerance is defined by the amount of risk that you, the individual investor, are willing to withstand and be comfortable with in your investments. Not identifying what kind of risk tolerance you possess can surely lead to investing disaster.

Determining your risk tolerance is easy once you identify two very important factors. They are your time horizon for your investments, essentially how long you plan to hold your investments, and your personal response to risk. That means, what decision are you likely to make when you’re investment loses 15% in a day.

Obviously the longer you can hold your investment the more risk tolerance you are able to withstand. The longer period of time keep you from making hasty decisions over short-term ups and downs in the price of your stock. Longer-term can be defined as 10 years or more. Investors with moderate time horizons, say 5 to 10 years generally have moderate risk tolerance and should invest in growth and income by investing in stocks, bonds and cash equivalents.

Investors were shorter time horizons one to five years generally have low risk tolerance should invest almost entirely for income by buying bonds and cash equivalents. There is some correlation between risk tolerance and age however, that doesn’t apply across the board to everyone. Identifying your personal response to risk should include an examination about how you feel personally about taking risk in losing money. If you avoid risk in everyday life chances are you should avoid it in your investment strategy.

For example if you worry on a daily basis, that will easily trans-late into worrying about your stock investments. If you enjoy risk and don’t worry easily you should feel comfortable investing for growth or trading options online assuming you have a longer time horizon.

One of the best ways to identify how you will respond to market fluctuations and risk is to own a stock. Let’s say an issue at $20 per share. Over three months the stock appreciates and gains four dollars a share to $24. You begin by feeling pretty good about yourself having picked the winner and you are enjoying a nice gain. Now, through no fault of your own, earnings start to come out by companies related to the industry of your stock. Since they are not good your stock loses eight dollars per share over four days. Ask yourself this question, how would you react in that situation? If you can answer this question and answer this question truthfully you are on your way to identifying your investing risk and risk tolerance factors. Not everyone is comfortable trading in Forex Mini Accounts, and not everyone wants to trade in bonds. Everyone fits in somewhere, find your place and you will be a much happier investor

While ETFs don’t yet number thousands of options like mutual funds, an equivalent ETF essentially exist for every type of index funds. So you have your choice of ETFs that track the indexes of stocks, commodities, real estate, specific sectors and industries.

How to Buy and Sell ETFs

ETFs are offered by traditional mutual fund companies and brokerage firms. ETFs each has a ticker symbol like stocks and can be bought or sold through a stockbroker or brokerage house at any time during a regular trading day.

ETFs Instead of Mutual Funds?

ETFs generally have low expense ratios and many are even lower than those of comparable index mutual funds. Whereas mutual funds can be sold at the end of each trading day ETF can be bought and sold throughout the trading day. ETFs often track indexes not offered by mutual funds. Still ETFs may not fix your investing need when compared to mutual funds.

Mutual funds in many cases do not have transaction fees. As with stops you’ll pay a commission each time you buy or sell in ETF. Mutual funds offer many more choices and ETFs when it comes to particular types of investments.

As with all investing models investing solely in ETFs, or investing solely in mutual funds will not give your portfolio diversification that is needed to balance risk and reward.

Perhaps at no time in history is diversification of your investment dollar more important than it is right now. If you are making money investing in markets right now, count yourselves as one of the fortunate few. However, investing in ETFs even for the beginning investor might be a good place to get your portfolio back in the black.

For those still in the productive years of their working life this may not be disconcerting. Conservative investors are turning away from the stock market in record numbers. For those nearing retirement the effect can be devastating. Nothing can compare with stocks over the long term, however many investors are not in that position.

Bonds and income investing offers security that stocks cannot match. No matter your investment strategy preservation of capital is rule number one. Barring a bankruptcy by the company in which the bonds were purchased the investor can be near certain of receiving the amount originally invested.

Bonds pay interest incrementally over time and provide income to retirees or people who want cash flow. The tax advantages of investing in bonds from governments and municipalities are the interest is tax exempt. This is attractive to those wishing to limit their tax liability.

No one can say for certain what will happen in the stock market. One this we do know it that all the major indexes are trending down with no end in sight. Investing in bonds becomes a more attractive option everyday.

Today’s investors are much wiser than in days past. Information is available for most any type of investor and investors make money in any type of market. Today’s investor also seeks portfolio diversification unlike investors of the past. Bonds and fixed income securities are an essential part of that equation Investing in bonds is very safe, and the returns are usually very good. Investing in bonds is generally considered safe.

Bonds are a foundational element of any financial plan to invest and grow wealth. Bonds will pay a steady income. Investment advisers typically recommend that investing is stocks and bonds, and cash can lead to portfolio diversification if each investment vehicle is tailored to meet individual investment objectives.

Bonds investing offers almost as many options as investing in stocks, . Bonds are essentially loans you make to corporations or governments. Bonds are also called fixed income securities because they pay interest that is fixed at a coupon rate. Bonds tend to be safer than stocks because if you hold bonds until the maturity date. Investors who agree to buying municipal bonds effectively loan money to the issuer in exchange for an agreed number of payments over a prearranged time period.

Investors need to consider their time frame to choose bonds that fit their needs. Investors in high-income brackets are almost always better off investing in tax-free municipal bonds. Investment takes plenty of effort, timing and crucial decisions, making it a rather difficulty, but ultimately rewarding endeavor .

For illustration purposes, lets assume I have just invited you over for dinner. Assuming you accepted the invitation, one of the first questions your would ask is “How do I get there? “ The same applies to beginner investors. Every investor was at one time a beginner investor. The investors who reach the finish line with a nest egg had a plan to get there.

Lets get back to dinner. I live in Florida. You live in California. That would not provide enough information for your arrival. You have a starting place and a destination, but what about the plan to get to dinner? You would need to know specifics. The same applies to investing. You would prepare for the journey, chart a course and arrive safely in Florida as you would with your investment goals.
The same principle applies to beginner stock market investing. Lets assume you have $10,000.00 to invest right now. So how do you prepare?

Understand How The Stock Market Works

Individual investors should start right here. What makes a stock price move? Hint: it is not individual investors. Institutional investors, such as mutual funds, and banks, move stock prices up and down. Simple supply and demand I the order of the day. Institutions make a living buying and selling stocks. Following along with how institutions trade is a good place to start. Understand your 1000 shares of XYZ are not going to move the stock price.

Defining Yourself as An Investor

My personal stop loss point is 6%. Why is that? Because I do not like the way it feels losing 10% or even 7%. This is a hard and fast rule for me. I remember following a stock once down to a 20% loss thinking all the while it would come back. It did not. The point is I know myself, and I know my rules. They are non-negotiable factors for me with investing in the stock market.

Where Are You Now As an Investor?

Every journey begins with a starting point. Every journey has a destination point. Everything you do in between will either define your success or document your failure. Set your goals; practice your strategy with paper trading stocks. Set aside capital for short term investing. Plan to include long-term investments. Open a money market account for safely keeping your cash. If you want to trade options, first learn how to trade options . Determine your plan and then work your plan. Dinner is at 6

The degree of risk varies from investment to investment and as we have discovered recently with the ebb and flow of financial markets. Investing for beginners in stocks, bonds, or mutual funds carries risks of varying degrees and all investments are risky.

That being said there are ways to reduce risk and still maintain a decent return on your investments, but understand this, high rates of return bring with them high risk concerns. CD’s and Money Market funds will keep your investment safer and reduce risk, but it also reduces your potential reward.

Every investor has a risk threshold. How much risk they can live with comfortably and it is different for each investor. Each defines what is acceptable risk and should be a priority for any beginning investor. Everyone needs to sleep at night and not held hostage to high levels of anxiety caused by worrying about their investments.

Hint: if this is happening to you already, its time to change your approach. When you find your own comfort zone, you’ll know your personal risk tolerance, the amount of risk you are willing to tolerate in order to reach your financial goals.

Investing in stocks on a long-term basis will help lessen the risk, but not eliminate it completely. It would be better to choose some lower risk investments as a beginner and let your investing philosophy evolve over time.

One o f the biggest issues for beginning investors is the inevitable question of; Is this the right time to get into the stock market?  Consider your goals and motives for investing in the stock market. Define a plan and then work the plan and risk and reward will take care of itself.

Margin trading is a high-risk strategy that can give you a huge profit if executed correctly, the flip side of that is that you can have huge losses. One of the only things riskier that investing on margin is doing it without understanding what your doing and what the consequences could be!

Buying or trading on margin means that you are borrowing money from your broker to purchase stock. You are using leverage. It’s a loan that allows you to buy more stock than you would be able to normally. To trade on margin you need a margin account, which is different than just a cash account in which, you trade using money that you have deposited. There is an initial investment required to open a margin account and each brokerage house is different. Once you have your margin account open, you can borrow up to 50% of the stock purchase price, it’s important to know that you do not have to margin up to 50% you can do less 10% or 20%, I personally would not recommend to margin up to 50%!!

You can keep your loan as long as you want, but remember you borrowed money and no one gives a loan for free. You have to pay interest on that loan. The stocks held in your account are collateral for your loan. When you sell a stock in a margin account the proceeds go to the broker for repayment of the loan until it is paid in full.

Buying on margin should be used as a short term strategy. The longer you hold a margined investment, the greater the return that is needed to make a profit or even break even. The longer you hold a margined investment, odds are you will not make a profit.

Not all stocks can be bought on margin. Brokers will not allow the purchase of penny stocks, over the counter Bulletin Board (OTCBB) securities or Initial public offerings (IPOs) to be purchased on margin because of the high volatility and risk associated with these types of stocks.

You have two different types of margin restrictions on your account. One is the initial margin, which is the amount you can borrow. The next is the maintenance margin, which is the amount you need to maintain after you trade. These amounts are set by the Federal Reserve Board. Minimum initial margin is 50% and maintenance margin of 25%, some brokerages can have stricter limits.

If the equity (which is the value of the securities you hold minus what you owe the brokerage) falls below the maintenance margin, the brokerage will issue a margin call. If you are issued a margin call you will need to deposit cash into the account or liquidate your stock positions to cover the call.

For example you purchased $20,000 worth of stock by borrowing $10,000 from your broker and paying $10,000 yourself. The value of your stock drops to $12,000, so the equity in your account falls to $2,000 (12,000 -10,000 = 2,000) 25% of 12,000 = 3,000. You would be issued a margin call for 1,000, which is the difference between the equity in your account and the 25% maintenance’s margin on the value of your 12,000 worth of stock.

If you do not take care of the margin call by depositing money or selling stock, the brokerage has the right to sell securities (stock) to increase your account equity until you are above the maintenance margin. Under most margin agreements, a firm can sell your securities without waiting for you to meet the margin call, and they don’t need to consult you before doing it!