Investors who are well informed know what questions to ask to zero in on what a broker is all about. They also know the right questions to ask when it comes to communicating their needs as effectively as possible to the broker they have decided to work with. As well an investor who is “in the know” about brokers is less inclined to be charged higher commission fees then he/she should be. You need to do everything in your power to make sure that both your broker and the brokerage firm you select have your best interests at heart.

Research Your Broker

One of the first things you should do is to research your broker online. Search for him or his firm on the NASD website .  Be specific about what you are looking for. You want to know whether there have ever been any judgments or liens against him. You want to see if any complaints have ever been lodged. If yes then when? What was the complaint about? You also want to see if he has ever been let go by a former employer. All of this information is pertinent to you. It is also free. You can request that a detailed report be sent to you. From there you can look it over more thoroughly.

Being privy to this information will help to provide a basis for your relationship with a brokerage firm and a particular broker. It will also help you to decide whether you can have confidence in the firm and the brokers its hires or whether you should look elsewhere.

Ask Questions, Get Answers

It then will become necessary to ask the prospective broker how long he has been working as a broker, how long he has been with the firm, and why he chose that firm. You will also want to know how many clients he works with on a regular basis. Asking questions and listening carefully to the answers can help you to learn plenty about the individual.

You also need to inquire about what the broker’s money line is. To put it another way, you need to find out how the broker makes his money. Once you know what the broker’s money line is you will know whether he has a sufficient number of clients. This will also provide insight into his terms of commission and/or changes made to commission charges. 

Market Makers or Not?

You need to find out if the brokerage firm in question makes markets or whether it does not. The majority of brokerage firms are market makers. What this means is that they act as intermediaries between buyers and sellers when it comes to the trading of NASDAQ stocks. Many of these firms use the status they have as market makers to build an inventory of stocks. What this means is that they make a commission from their clients (like you) but they also make money off of the purchase and/or sale of the stock. The brokerage buys at the bid and sells at the offer (or ask). You on the other hand as an investor do the exact opposite.

This is something that many investors fail to ask brokers they are contemplating working with. This is a mistake. You need to ask. When you ask whether or not the brokerage firm makes markets in the stocks that you, the investor buy, this will give you a clearer picture of the amount of money that they are generating from your brokerage account. It can also provide you some leverage when it comes to negotiating the structure of the commission they receive from you.

Negotiate Commissions

Commissions are not written in stone. There is room for negotiation and then for further negotiation if need be. Bear in mind that there is a tremendous amount of information available online when it comes to discount brokers and stock research. For this reason the broker you select must remain as competitive as possible in terms of the commissions he charges his clients. This can work in your favor.

One thing you might suggest doing is to have the commissions you pay tied in with the performance of the broker. This can make the situation fair for both yourself and the broker. Most brokers that are worth your time and money will be willing to consider this idea of yours. Be aware of course that you get what you pay for. If you want the absolute best then you will pay more. For example, a full-service broker who has access to the top research and shares in an IPO will cost you more than if you go to a deep-discount brokerage firm. The key is to look around and shop around to find out what other brokerage firms are charging, regardless of the type of service(s) you are seeking.

Catch Up on Your Reading!

The more you know about a firm the better position you will be in to make the right decision about which one best suits your needs. You need to read up on the firm or firms you are considering. When it comes to researching the brokers with big names look to web resources as well as trade journals for the information you seek. While you do not want to be pessimistic or to assume the worst you need to look for any problems within the brokerage or any high-level departures. It also is a good idea to see if you can determine whether the company in question is competitive when it comes to the products they offer as well as the commissions they charge.

Underwriting and Research- Is it Done in House?

A conflict of interest can exist for firms that peddle their own research. This is particularly the case for the ones that recommend companies that they currently have a banking relationship with. This is something you should look out for as be informed about. If you are aware that such a conflict exists then you should let the broker know that you are aware of it. This makes it much less likely that you will be taken advantage of by the broker.

Benchmarking Performance

It is wise to let the broker know that you are benchmarking his performance against other major indexes. Examples of these include the S& P 500 and the Dow. If you are not familiar with the term “benchmarking” it refers to a standard by which something can be judged or measured. Benchmarking is commonly done in all different areas of business. It is defined as “the process of comparing one’s business processes and performance metrics to industry bests.”

You should also inform the broker that if he is not outpacing the Dow or the S & P 500 after a particular duration of time that you will purchase a no-load mutual fund that will be able to track those indexes for you. This is bound to get the broker’s full attention!

Review Your Statements

Do not become complacent about where your money is going. It is important for you to review every one of your monthly and quarterly statements. Make sure you can account for every dollar that you have invested. Focus in on every trade that you have made and confirm that the commission that was agreed upon is actually what was charged. If you find any discrepancies or any errors then speak with the broker without delay. Or you might want to instead make a call or pay a visit to the sales manager at the brokerage firm.

Communicate with the Sales Manager

Speaking of the sales manager, it would be a smart idea to speak to this individual periodically. Not all investors know that sales managers often receive an override on commissions that are made from the investors’ accounts. To explain it more clearly, this means that the sales manager earns money on trades that take place in your account when it comes to supervising the broker you work with as well as  in terms of ensuring that the trades that are taking place are in line with your objectives for investing.

For these reasons it is wise for you to open the lines of communication with the sales manager of the brokerage firm. Develop a habit of speaking with this person as regularly and as consistently as possible. While the sales manager will not know every single solitary detail of your account as well as your broker does, he can still provide a wealth of information about the firm’s history as well as your broker’s history. The sales manager can also confirm any information that you are given from your broker. All of this can help you to feel better about the firm you have entrusted your financial and investing goals with.

A Golden Opportunity

The expression “All that glitters is not gold” does not fit in terms of investing in gold. Gold is the most sought after and indeed the precious metal that takes top honors. There are many reasons for this. Gold is very durable as it does not rust nor does it corrode. It is also malleable and has the ability to conduct electricity and heat. It is also versatile in that it can be used in electronic as well as dental applications. The principal uses of gold however are as a type of currency as well as a base for many pieces of jewelry, from rings to necklaces to earrings to bracelets.

The value given to gold is determined by what is happening in the financial markets, on a 24/7 basis. The price of gold is not as affected by the laws that govern supply and demand as much as other types of precious metals. Sentiment plays a role here. The reason for this is primarily because new mine supply is greatly outweighed by the size of the above-ground gold that is hoarded. To put it a slightly different way, when the gold hoarders decide that they want to sell then the price of gold drops. When they want to buy gold the new supply of the precious metal is absorbed at a rapid rate and the prices of gold go up.

There are a variety of factors that can cause an increase in the desire to hoard gold. These factors include systemic financial concerns, inflation and political crises or war. Let us look at those now.

When financial institutions and the money they have are perceived as being unstable then gold is often sought out as safe in terms of its store of value. The same can be said if the stability of a government is in question. This therefore constitutes systemic financial concerns.

Inflation is another factor that makes a difference. When the real rates of return are negative in the real estate markets or in terms of bonds or equities then individuals look to gold as an asset that will continue to be valuable.

Any type of political crisis or upheaval and/or war cause people to hoard gold like crazy. This is because gold can make a lifetime worth of savings as portable as possible and can then be stored until the point at which it can be traded for food, shelter or a safe voyage to a destination that is out of danger’s way.

The Attributes of Silver

Let us turn our attention now to another precious metal, that of silver. Unlike gold the price of silver tends to swing back and forth from being perceived as a store of value to playing a significant role for its use as an industrial metal. This explains why the fluctuations in the price of silver are more volatile than the price fluctuations for gold.

While silver can be hoarded every bit as much as gold due to the investment demand, the industrial supply and demand for it has a tremendous impact on its price. The supply/demand equation in this case fluctuates with its share of new innovations.

These innovations are many. For example, silver once played a very essential role in the world of photography. Silver-based photographic film was dominant until the digital camera came on the scene and changed that. The rise of the vast middle class in terms of the emerging market economies of the East created a very high demand for everything from medical products to electrical appliances to any type of industrial item that contains parts made of silver. Silver is very versatile and is used for everything from electrical connections to bearings. The properties of silver make it a commodity that is in much demand. Silver is used in microcircuit markets, superconductor applications and batteries. These new innovations have caused silver to be more and more desired.

At the present time it is unclear as to whether these developments in various industries will affect the non-investment demand for silver overall, and to what extent it will affect it. What is known at the present time is that the price of silver is impacted by the applications it is used for. Silver is therefore not just used to make jewelry or as a store of value.

Get Ready to Go Platinum!

In much the same way as the other precious metals described here- gold and silver- platinum is traded nonstop, 24/7 on global commodities markets. During routine periods when the market is stable, as well as when there is political stability, platinum tends to get traded for a higher price because it is much less rare. As well a smaller proportion of the metal is mined on a yearly basis.

There are other factors that come into play when it comes to determining the price of platinum. In fact all of these factors are the reason why platinum is the most volatile of all of the precious metals.  For example, platinum in much the same way as silver is an industrial metal. The largest demand for this metal is automotive catalysts. These are used to reduce the dangers that come from emissions. Jewelry would be the second industry that has the greatest demand for platinum. It is also readily used for petroleum and chemical refining catalysts as well as the computer industry.

Due to the fact that the automobile industry relies so heavily on platinum the prices are therefore determined in large part by production numbers and auto sales. Legislation that relates to “clean air” could make it such that companies that make automobiles are required to install more catalytic converters. This would then increase the need for platinum in this industry. However in 2009 both American as well as Japanese automobile companies were beginning to use recycled auto catalysts and/or use more of platinum’s sister group metal palladium, which is very reliable and less expensive than platinum.

The majority of mines for platinum are heavily concentrated in two countries in particular. These include Russia and South Africa. This lends itself to a greater potential for cartel-like action that supports the price of platinum as well as artificially raises it.

Investing in Precious Metals

So what options do you have when it comes to investing in precious metals? Let’s take a look at what your portfolio could be made up of in this area.

Commodity exchange traded funds (ETFs) are available for gold, silver and platinum. As of 2009 to access a commodity ETF for platinum you must be able to trade on the London Stock Exchange (LSE). Exchange traded funds are both liquid and convenient in terms of buying and selling any of the three precious metals.

Common stocks and mutual funds are other options worth looking into. Shares of precious metal miners are leveraged to price movements in terms of precious metals. Be aware however that unless you are knowledgeable of how mining stocks are valued it may be smarter and in your best interests to stick to funds that have managers that come with solid performance records.

Both the futures as well as the options markets allow for both leverage and liquidity to those investors who wish to make big bets on precious metals. The greatest potential for both profits (and unfortunately also losses) can be found with derivative products.

Bullion is yet another viable option for you. If you do not have a place to put coins and bars then you are better off looking to something else. If you tend to expect the worst then bullion should be the option you choose. However if you are an investor with a time horizon then bullion is illiquid and is a pain to hold. Pass it up in this case.

Certificates provide investors with all of the benefits that come with owning gold in its physical form but without the hassle of transporting and storing it. Certificates are just paper at the end of the day however and do not provide any real type of insurance. You cannot exchange them for anything of true value.

Precious Metals and You

Precious metals offer a type of unique and special protection from inflation. They also have intrinsic value and can provide just the type of insurance you are looking for. They also provide to every investor both a beneficial as well as an effective means of diversifying a portfolio. Regardless of whether you choose gold, silver, platinum (or a combination of these) you will not be disappointed in your investment choices.

An investment that makes it possible for a person to buy or sell the option on a security is known as the derivative. Derivatives can be described as types of investments whereby the investor does not own the asset that is underlying but instead makes a bet on the direction that the price will move by way of an agreement with another investor.

There is more than one type of derivative instrument. There are options, futures, forward contracts and swaps. Derivatives can be put to use for more than one reason. They have a variety of risks attached to them but generally speaking they are considered to be an alternative means of participating in the financial market.

Derivative Terms

Derivatives can sometimes be difficult to comprehend because they have a language that is all their own. To use an example of this, there are many instruments that have a counterparty. It is the counterparty that is responsible for the opposite side of the trade that is to take place. Be aware that each derivative comes with an underlying asset on which the derivative’s price, basic term structure and risk are based. Remember this- it is the perceived risk of the underlying asset that in turn influences the perceive risk inherent in the derivative.

A derivative’s pricing can also be a complicated concept to understand. The pricing of such may come with a strike price. This means the price at which the derivative can be exercised at. When it comes to fixed income derivatives there may be a call price. A call price is the price at which the issuer is able to convert a security. When it comes to derivatives there are also an array of positions that an investor can decide to take. This can be confusing for the newbie investor to understand. A long position is the name given to the buyer of the derivative while a short position is the name given to the seller.

Derivatives and Your Portfolio

Derivatives are used by investors for three main reasons. The first reason is to hedge a position; the second is to increase leverage and the third is to speculate on the movement of an asset.

Hedging a position is generally done in order to protect against or to insure the risk of a particular asset. For example, if you own shares of a stock and you want protection in the event that the price of the stock falls then you may decide to purchase a put option. If the stock price rises then you have gained because you are the owner of the shares. If the stock price falls then you gain because you own the put option. The potential loss from holding the security in the first place is hedged with the position of the options.

Derivatives can play a significant role when it comes to leveraging. Options are especially valuable when the financial markets are volatile. To explain this another way, when the price of the underlying asset moves a great distance in a positive direction then the movement of that option is magnified.

Speculating on the movement of an asset is a technique that investors put to use when they bet on the future price of an asset. Options provide investors with the ability to leverage their positions. For this reason large speculative plays can take place at a very low cost.

Trading Derivatives

Buying and selling derivatives can take place in two different ways. Some derivatives are traded over-the-counter (OTC) while others are traded on an exchange. The OTC derivatives constitute contracts that are privately arranged between parties. An example of this would be a swap agreement. This market is the bigger of the two and does not have any regulations. On the other hand, derivatives that trade on an exchange are contracts that are standardized. OTC contracts contain counterparty risk because they are private and unregulated while exchange derivatives do not contain this risk because the intermediary is the clearing house.

Types of Contracts

Contracts can be broken down into three types and each type has its own variations. There are options, swaps and futures/forward contracts. Let us take a look at these now.

Options

Options are contracts that offer the right to buy or sell an asset but not the obligation to do so. Option contracts are most often used when an investor does not want to risk taking an outright position in the asset but does wish to increase their exposure in the event that the price of the underlying asset begins to move greatly. There is more than one option trade that an investor can use. The most common ones used include long call, long put, short call and short put.

Long Call

If you have reason to believe that the price of a stock is about to go up then you can buy the right (long) in order to buy (otherwise known as call) the stock. As far as the long call holder is concerned the payoff is positive if the price of the stock exceeds the exercise price by more than the premium that is paid for the call.

Long Put

If an investor feels that a stock price could go down then he can buy the right (long) in order to sell (or put) the stock. For the long put holder the payoff is positive if the price of the stock ends up being below the exercise price by more than the premium that was paid for the put.

Short Call

If as an investor you are concerned that the price of a stock is about to decrease then it is best to write a call or sell it. If you decide to sell the call then the investor who buys the call (the long call) then gets to decide whether the option will be exercised or not. As the short or seller you relinquish control. For the writer of the call the payoff is equal to the premium that is received by the call’s buyer if the stock price does indeed decline. However if the stock price goes up more than the exercise price plus the premium then the call writer will lose money.

Short Put

If you have reason to believe that the price of a stock will increase then you can choose to write a put or sell it. As the put writer the payoff is equal to the premium that comes from the buyer if the stock price goes up. However if the stock price drops below the exercise price minus the premium then money will be lost by the writer.

Swaps

Another type of derivative is a swap. Swaps are such that counterparties exchange cash flows or other variables that are connected with different kinds of investments. It often happens that a swap will take place because one party has an advantage in one specific area (such as borrowing funds under variable interest rates) while another party is able to borrow more freely because of the fixed rate. The simplest variation of a swap is referred to as a “plain vanilla” swap.
There is more than one type of swap. The most common ones include interest rate swaps, currency swaps and commodity swaps.

Interest Rate Swaps

In an interest rate swap two parties can exchange a fixed rate for a loan with a floating rate. If one of the parties has a fixed rate loan but has floating liabilities then that party may decide to swap with another party and by so doing exchange a fixed rate for a floating rate in order to match the liabilities. These kinds of swaps can also take place through option strategies. What is known as a swaption provides the owner with the right to enter into the swap but not the obligation. This is very similar to what happens with an option.

Currency Swaps

When it comes to a currency swap loan payments and principal in one currency are exchanged for the same two things in another currency.

Commodity Swaps

A commodity swap is a contract whereby payments are based on the underlying commodity’s price. The producer in this case can decide what price that the commodity will be sold for while the consumer can decide the price it will be paid for.

Futures/ Forward Contracts

These types of contracts are drawn up for two parties and relate to buying or selling an asset in the future for a particular price. In most cases these contracts are written in reference to the price for the given day (the spot price). The profit or loss of the buyer makes the difference between the spot price at the time of delivery and the future or forward price. Contracts of this kind are used in order to speculate on prices in the future or to hedge risk. Forwards and futures are slightly different. Forwards are non-standard contracts that trade OTC while futures are standardized contracts that trade on exchanges.

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 .