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Investing in Bonds

Investing in bonds allows investors a wonderful means to construct an investment portfolio that is well-diversified. The investment in stocks and bonds and cash can lead to portfolio diversification if each investment vehicle is tailored to meet individual investment objectives so that is what the investment advisors typically recommend. Using efforts to be compatible with every investor’s different risk tolerance and investment goals, the different portfolios contain varying percentages. Many important factors also need to be taken in consideration such as the interest rate on bonds, price, maturity, tax status etc. The relevant information regarding the key factors to be taken in consideration by any investor before deciding to invest in bonds will be discussed in this article.

While making the decision as to which bonds one should invest, in a very important factor should be the interest rates of the bonds. Bonds are available with interest rates that are fixed, adjustable, or payable when they mature. A bond that is fixed means that the interest rate is the same until maturity and the interest rate that is paid is a percentage of the principal amount. Floating or adjustable bonds are comprised of an interest rate that tracks closely with current market rates. The interest rates change sporadically with the rate index for this type of bond. The final type of bond is one that pays out the interest earned plus the principal amount in a single payment at when the bond matures. Part of the decision-making process when bond investing is to choose whether to invest in short-term bonds, intermediate or long-term ones. It usually takes short-term bonds five years to mature; intermediate bonds take five to twelve years, and long-term bonds take more than twelve years to reach maturity. The term maturity indicates the date when the principal amount invested by the investor is repaid. This time period can be of varied lengths and can be as long as thirty years.

Each investor should understand the facts when investing in bonds. The beginners in the field should be aware of the fact that there is a possibility of losing money while investing money in bonds and that their price moves in the direction opposite of interest rates. If you hold onto the bond until maturity, then it doesn’t matter when interest rates fall, bond prices rise. At maturity you’ll receive the amount written on the face of the bond as well as any interest that has accrued. Be aware that stocks do not always outperform bonds, so you should research bond investments and investing in stocks so that your portfolio is diversified.

It’s mandatory to gain an understanding on how an investor proceededs to invest in various bonds. They have the option of buying through a broker, a mutual fund, or straight from the government. If you are planning to buy through a broker it would be prudent to purchase fresh issues at wholesale as far as possible. The broker can also help you in investing in bonds that are older and are traded in the ‘secondary market.’ This is normally done over-the-counter and not on a stock exchange such as the New York Stock Exchange, however the costs for transactions are much higher here. The investors who would like to invest in dozens of bonds with the benefit of a fund manager who makes the decisions for the bonds purchase through mutual funds. These kinds of bond funds have more liquidity compared to individual bond issues. One final way you can buy bonds is to purchase them at the auctions held by the U.S. government. The most inexpensive method to accomplish this is to purchase them directly from the U.S. Treasury to prevent having to pay bank or broker fees.

Now that you have been briefed with an overview about bond investments, you should do your own research so that you will be well educated when it comes to making wise investments.

Momentum Funds – Beating the System

Investing can be an intricate balance of systems as traders look for the best ways to maximize their profits. Some of these systems involved complex mathematics for projecting movements of stocks; some rely on simple indicators that can be found in a company’s financials. In the case of momentum funds, investors look for stocks that are exhibiting traits that are appealing for long-term growth.

Momentum funds invest in companies based on current trends in such things as earnings or price movement. The portfolio manager identifies companies that have been trending in a certain direction, such as a series of very positive earnings statements or increasing price momentum in the short-term. The manager will then take positions consistent with the direction of the trend and attempt to let his momentum fund ride the wave and sell once it has peaked.

Following History with Momentum Funds
While typically known as momentum funds, these can also be referred to as “momo funds”. Momentum funds, which enjoyed a great deal of popularity in the late 1990s, often make investments in companies that sustain their earnings or sales at a rapid pace and are anticipating further increases in the near future. Momentum funds also invest based on such technically-based indicators as price breakouts from historic levels.

The investment premise of a momentum fund has found detractors in the long-term, value oriented segments of the market because it is generally regarded as too difficult to predict short-term price movement. With that said, it is difficult to discount the potential of momentum funds, even in the current market.

For example, an investor who had a momentum fund in 2000, the worst possible time to do so, would still have ended 2006 with a 43% gain if courageous enough to stick with it until then. To compare, the Standard & Poor’s 500 index gained just 8% during the same time assuming that the dividends were reinvested.

Momentum funds can also be a profitable strategy for exchange-traded, diversified stock funds and sector funds. There are several simple strategies for momentum funds, most of which have outperformed the S&P index. One of these strategies involves investing in the 10 S&P industry sub-sectors that were the top performers in the previous year. For nearly 40 years, this system has produced an average gain of 13.4% a year, not including reinvested dividends. By comparison, the S&P 500 has only gained an average of 7.5% a year over the same period.

While such returns are unusual, this is the whole theory behind momentum funds. Investors find stocks that are on the move and take advantage of that fact to cash in on shares that have been tracking profitably. This gives the investor time to identify a solid trend and invest in it, riding the profits until he sees the end of the trend and gets out.

Every investor looks for a way to anticipate stock moments and create solid returns. Momentum funds provide their holders with a strong alternative to other forms of trading and do so with stocks currently performing at a high level.

Momentum Trading – Staying on the Move

Like most other trading techniques, momentum trading has its supporters and skeptics. Since this method of trading both disciples and detractors, it is important to define exactly what momentum trading is and what are its advantages and disadvantages in order to form an educated opinion.

In the simplest definition, momentum trading teaches that each year there are a few stocks that make five hundred to one thousand percent moves in the stock market. This fact can easily be seen by using one of the many free stock screeners that are available and entering the parameter that displays stocks that have gained at least 500% during the year. Depending on how the overall stock market has performed will dictate how many stocks show up in this search. Even during the severe bear market of 2000 and 2001 you will find dozens of small cap, unknown stocks that managed to make moves in excess of 500%.

Doing the math
Let’s take a minute and think about something. Imagine that every year there are 30 stocks that manage to make an 800% move in the stock market. Once you consider that, what would you have if you had jumped on these stocks after they had already moved 400% for the year? This is really the explanation of what momentum trading is. Momentum trading is getting on board a stock that has already been moving and putting in a strong performance for the year. You simply buy into it and with the expectation that it will continue its upward trend. Some stocks will continue to trend upward and some will not. With momentum trading you simply cut your losses quickly and ride the winners for as long as they keep heading in the right direction.

Many people will look at a stock which has already gained 400% and say it has probably already peaked. Instead of momentum trading, they would rather get in at the bottom and ride the stock from that point to a four hundred percent profit point. Who wouldn’t want that? Most people have been taught by the “stock gurus” to always buy low and sell high; this is great advice but it can be short-sighted. You have no way of knowing which stocks the market will fall in love with and which ones it won’t. At best fundamental trading technique can end up being little more that a random coin flip. You can pick two equally great-looking stocks, both with fantastic earnings and prospects, and one will languish while the other will go on to make earn an amazing profit. Is that really a risk that you are willing to take? With momentum trading you don’t have to take this risk because you move out of positions when the change directions.

Trying to pick a stock at its very bottom point is a greedy trap. Some people just are not happy with doubling or tripling their money; they want it all. Greed and fear are the emotions that always have, and always will destroy your stock market profits; momentum trading can help you avoid such traps.

Momentum trading has another advantage that is often overlooked. The benefit is the speed at which profits are made. Making a 500% return on a stock is great but if it took six years to make it then you have grown somewhat slowly. Trends start slowly and gather momentum as they continue so you know the fastest movement in a trend is in the most recent quarter. That’s why this practice is called momentum trading because the longer it goes, the better it does.

Momentum trading can provide another stable method for realizing consistent gains. By choosing stocks that have been on a strong upward trend, it is possible to enjoy a considerable (and profitable) part of that trend. If the direction does change, you can simply get out and move into something else. Momentum trading can keep you on the move as you build up trading profits.

Investing Strategies – Setting your Stop & Target

Can You Answer this Question?

On every investment you have, what is your protective stop and what is your profit strategy?

If you are like most investors, you have no plan at all when it comes to your investing strategies. So many people focus all of their work and diligence on making the right investing decisions. They do research, read articles, read annual reports and the prospectus, learn all the nuances of technical analysis, consult their Magic 8 Ball and so on. Probably 100% of the effort outside of making the actual trade comes from the research on what to buy and when.

Yet 100% of the stress of every trade comes from the time you take that trade forward. Not to mention 100% of your profits and 100% of your losses. So, would it make some good sense that instead of putting forth 100% of your efforts on the research of what to buy, that you consider putting forth a 50/50 split between your entry AND your exit strategy?

Do not transact a stock trade… a futures trade… a mutual fund investment… an options trade… unless you specifically know how you are going to take your profits.

A preset profit objective? Using trailing stops? And, even more importantly, what is your initial protective stop and how will you adjust that if the trade starts to break your way?

With your investing strategies in hand, you’ll be surprised how often you actually end up NOT making a certain investment. It forces you to look hard at the risk/reward. It also often shows you how little you really know about what to expect with that specific investment. When you start wavering on the exit strategy, that’s an excellent sign that it is time to move on to another stock pick.

Plus, if you are a long investor only, wouldn’t it have been nice to miss out on 70% of the bear market? With reasonably sound investing strategies, your portfolio probably would have been far greater with even the simplest use of protective stops.

No need to say anymore on this. Because it’s one of the simplest yet least followed of all trading rules:

If you do not have an investing strategy, do not enter. Simple as that.

Dollar Hits New Record Low, Which is Good for Earnings

The dollar’s impact on US corporate earnings continue! Last night, IBM blew away Wall Street when it reported that its 2008 profit will top its previous projections. Interestingly enough more than half of their 11 percent revenue was due to currency fluctuations!

The dollar matters.

The companies that will do the best this earnings season are the ones that are diversified geographically and have more than one line of business. Take PfizerJohnson & Johnson beat the street due to higher sales in the consumer division and on our currency fluctuations (Revenues increased 7.7 percent in the first quarter with currency moves contributing a whopping 5.1 percent to growth). Pfizer would benefit to take a page out of Johnson & Johnson’s book since they were the ones that sold their consumer spending division to J&J in 2006. for example, they spend approximately 1 billion dollars on the launch of any new drug. Their earnings missed expectations, driving the stock down significantly at the open. In contrast,

The further the dollar drops, the more that it will help corporate earnings. The only way for the US economy to recover, is through exports. Yesterday, six companies reported earnings that were either directly or indirectly tied to currency movements.

According to Lisa Twaronite of Marketwatch, “Weak dollar is often-overlooked key to earnings.” And she quotes, your’s truly.

Mutual Funds – Advantages and Disadvantages

Mutual funds are companies that pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, into other assets or securities, or a combination of each of these investments. They have a fund manager who is responsible for investing the pooled money into specific securities, and they provide the ability for investors to purchase stocks and bonds with much lower trading costs than if they tried to do it on their own.  When you are investing in mutual funds, you are buying shares and you become a shareholder.

Investing in this type of fund provides many advantages over stock investing. These advantages are explained below.

Diversification – This is the number one advantage and allows investors to purchase a large number of stocks.  Mutual fund investing provides you with portfolio diversification and it greatly reduces your risk.

Liquidity – The investor is able to receive money produced from this type of investment in a relatively short period of time. Income generated from stocks and bonds can be difficult to obtain and CD’s offer no liquidity at all. 

Cost – Small amounts of money can be invested at no trading cost.  Investors can also invest at regular intervals and receive the same manager, access and investment, as the wealthy stock brokers since mutual funds are non-discriminatory.

Professional Management – With this type of fund you hire a professional manager who researches and trades the market on a regular basis.  They are fairly inexpensive and they usually have a support staff devoted to them as well.

While there are many advantages, there are also disadvantages as well.  A few disadvantages are explained below.

In the Dark – Investors have a hard time finding out the exact make-up of a fund’s portfolio at any given time. They also cannot influence which securities the fund manager buys and sells or the timing of the trades.

Guaranteed Costs – While there are typically no trading costs, investors must still play sales charges, annual fees, and other expenses despite the performance of the fund. They may also have to pay taxes on any capital gains received even if the fund did not perform well.

Uncertainty in Price – Unlike investing in stocks where you can get real-time pricing information, mutual funds only calculate their NAV (net asset value per share) once a day and this typically takes place after the stock exchange closes. The fund unfortunately may not be calculated until many hours after you have placed your order.

Obviously there is much more information that you should know before you begin to invest in mutual funds. The advantages far out way the disadvantages and almost every successful investor will tell you that you need to invest in mutual funds in order to build a strong portfolio. You may also want to learn about topics such as asset allocation, hedge fund investing, and stock charting.  These are additional investing concepts that may be of interest to you as well.  Happy investing and good luck!

Online Trading Course

Online Trading Course in Forex Trading

Many people are interested in trading forex these days due to the advent of the internet. This has made forex trading more available to a wider population that it previously did not reach. The only problem now is finding the time to take an online trading course that equips you with the knowledge and tools to trade successfully in the forex markets. New investors must understand that the forex markets are very technical and contain an array of processes, concepts, and terms that you must understand. The great thing about taking a course online is that you can learn at your own pace and many courses are free if you are just leaning the basics. They are numerous websites that offer an online trading course for free for new forex traders.  In addition to online classes there are also many free seminars that are also available online. Just like taking a trading course online, you can also attend a virtual online seminar at either no cost or at a cheaper rate than if you were to attend a seminar in person. Not only is education important when learning fx trading, you must also practice repeatedly.  You can learn everything about online forex trading, but until you practice you cannot get a complete picture of the process.  In addition to taking an online trading course, you should also set up a demo account.  These demo accounts provide a great opportunity for new traders to learn how to trade forex, without the risk of losing real money.  Many websites offer a demo account to new investors so that they can practice their forex trading strategy with no risk of money lost. They are purely for practice. When you are looking for an online trading course that will provide you with useful tools and the knowledge necessary to trade successfully, you must look for the following:1)  Real Time Profit Records – Before you purchase any type of forex education course, you must ask for these records. If they will not provide these records to you it may be because they do not have confidence in their own system or they haven’t used the system yet themselves. If that is the case, then move on.   Unfortunately, this does happen a lot when dealing with online trading. 2)  If the course is free, why are they offering it for free?  Is there a catch? If you take this free course, are you then obligated to enroll in their trading site?3)  Once you begin reading a book about trading forex, does it feel like the author is promoting only one particular forex trading system, in a very pushy sort of way?Many people these days are referencing free articles and advice provided in investor blogs, and they are joining online forums instead of taking a free online trading course. This way they are provided with the best advice when it comes to finding a suitable course to learn about forex signals, rather than researching endlessly on the internet on their own. If you are serous about investing in the forex market, then you must build your trading skills and knowledge through various seminars, workshops, video tutorials, by taking an online trading course as discussed in this article, and through reading recommended books. Learn to implement technical analysis into your trades, learn how to use the technical indicators and practice first through the use of a demo account. In doing this, you will greatly increase your chance at success when trading on a forex exchange.


Learning Online Investing

Learning Online Investing via the Internet

If you are interested in learning online investing there are a lot of steps to take to ensure success.  There are various items that you will need including, a computer and internet connection, money to invest, and lastly you will need an online broker. These are just the basics to creating online investments. You also need to understand the rules of investing, investment psychology as it relates to greed and fear, and economics and how if affects the stock market.  You should also know that online investing follows the 80/20 rule which states that 80% of traders lose money, while only 20% actually make money.   Don’t let that scare you away, however, because with the proper training and education available on the internet these days, the average Joe can make millions investing online

Online stock trading has changed the dynamics of the stock market however there are still those traders who prefer to stick with the traditional broker.  They may have little time and see it more as a hobby, or they may not have as much knowledge of the stock market as online traders.  Those that spend time learning online investing know that they can obtain real life quotes and they know that they have much more control over trading when doing it online. These stock traders believe that there is no one who cares more about your financial well-being than yourself, so they prefer to do it alone or perhaps through the use of an online discount broker. For those who prefer to do it alone, the importance of learning online investing cannot be stressed enough.

Financial planning in general can be quite complicated, but fortunately now there are so many tools available online. These tools include calculators, online worksheets and many other resources for learning online investing.  The first thing you must do once you are ready to begin investing is to analyze your current financial position. You must find out how much you typically spend. Do you need to cut-back?  Do you have a budget?  You must practice successful money management, before you can even begin to trade stock, or invest your money by other means. You must also decide on your financial objectives. What are your plans for home ownership, cars, starting a family?  You must develop a workable plan that can assist you in meeting those objectives. Lastly, you must build your financial base so that you can start to accumulate wealth.  This includes building a strong portfolio that is well diversified to offer you protection in your new investments.

Whether you are looking to learn stock trading as a hobby, or if you are working to build on your retirement investment, learning online investing is vital to your success. There are still those stock brokers and investment advisors who can assist you if need be, but just be sure that you do your own homework and don’t rely solely on the opinions of your broker.

No Load Mutual Funds

What are No Load Mutual Funds?

In order to understand what it means to invest in no load mutual funds, you must first understand what it means to invest in loaded mutual funds.  Loaded mutual funds are funds that carry a sales load which is commission paid to investment brokers typically ranging anywhere from four to eight percent.  Mutual fund investing of this type generally means that you pay the sales fee up front, on the back-end, or there is an annual fee associated with it. No load mutual funds do not contain any type of commission or sales charge because the shares are distributed directly to the investment company, rather than going through a secondary party. The reason for this is that there is no transaction cost to purchase this type of mutual fund and therefore all of the money invested is working for the investor. The justification provided for loaded mutual funds is that the investors are compensating a sales intermediary, such as an investment advisor, or a financial planner for his or her time and expertise in the selection of an appropriate fund. Investors seek out no load mutual funds instead of loaded mutual funds because they believe that they will outperform the higher priced funds over time because the fees won’t eat away at the overall net return on investment.  The shares for this type of fund are purchased directly from a mutual fund company or indirectly though a mutual fund supermarket.  True no load mutual funds contain absolutely no fees, whereas a supermarket no load fund may contain a very small fee referred to as the 12b-1. This 12b-1 fee can be 0.25% to 1.0% of its assets, and is also known as the cost of distribution. It is still however, considered a no load fund and will lead to better investing and diversification of your investment portfolio. Words of wisdom regarding no load mutual funds consist of a few known facts that investors should realize before investing money in mutual funds. For instance, for every high-performing loaded mutual fund, there is a similar no load fund or low load mutual fund that can be purchased at a cheaper price. When investing in mutual funds, no load funds consistently outperform loaded funds after you take into consideration final calculations, and a load does not go towards any type of incentive for the fund manager to perform better.

Investing advice that you should also consider is this. If a loaded mutual fund is held over a long period of time, the effect of the load is not diminished as quickly as you would think, if paid up front.  It is interesting to note that if you selected a no load mutual fund, that money paid (as if it were a loaded mutual fund) would have been compounding over the whole time period. In fact studies have shown that no loaded mutual funds significantly and consistently (as stated above) outperform loaded funds.Successful investors realize that to build a strong portfolio, mutual fund investing is a must.  It is up to each investor, however to determine the type of mutual fund that they will invest in to achieve portfolio diversification. While loaded mutual funds can still provide a great return, each investor will ultimately need to decide whether the services provided by these loaded funds are valuable enough to justify giving up the higher returns of no load mutual funds.

Top Mutual Funds

Find the Top Mutual Funds

Finding top mutual funds to add to your investment portfolio can be a complicated process and may not necessarily be the same for every investor. When investors speak of top mutual funds, they are referring to those mutual funds that have weathered the market well and are consistently making money.  Before deciding which funds are the best for you it is important to understand your investment objectives and also to determine the risk level that you are comfortable with. For example, if you are older and are looking to begin retirement investing, you may want to invest in a fund that is lower in performance, but that is safe.  If you are very young and have more time to weather the ups and downs of the markets, you might look to invest in a fund that has a higher risk, but that is highly aggressive in terms of its performance.  In this article we will discuss key elements necessary to finding the top mutual funds that will work for you.

The first step is mentioned above and it refers to knowing your investment goals and objectives. The second step is to utilize the services of financial professionals such as investment advisors or investment brokers. Take advantage as well of some of the online rating systems that can give you a snap-shot of a mutual fund’s performance and the fees associated with that fund.  It is also important to utilize reputable mutual fund companies.  You can ensure this by researching various companies and through working with a financial planner who has experience with many different types of mutual fund investment companies. Another important piece to investing in top mutual funds is also to understand the performance of each fund that you choose to invest in. Mutual fund investing requires that you research prospective funds that have performed in line with your expectations, keeping in mind that past performance is not necessarily indicative of future performance.

It is also important to understand the tax implications when investing in mutual funds. It is different from investing in stock in that when you own stock, you are required to pay taxes each year on any dividends or interest that you receive even if you choose to reinvest. Top mutual funds only require you to pay taxes after you sell your shares, and only if you made money on the shares. It is important to note, however that you will owe income tax on dividends in the year that you receive them and you may also be required to pay taxes on the fund’s capital gains for the year. The tax implications are a bit confusing so it is very important that you have a clear understanding before you become a shareholder and begin to invest in this type of fund.

Each investor must also understand the fees associated with investing in top mutual funds.  The fees included are due when you initially invest in the fund, and each year following as you continue to invest. Additional fees typically include transactional fees, such as buying or selling shares, and if you move your money within the same fund group. Basically, whenever you make a change to your account, you will most likely be charged. Each investor must be sure that they understand all of the fees upfront to prevent any surprises when you receive your first statement.  You can also check out money market mutual funds as well if you interested in learning more about your choices.

Whether you are looking to build your retirement investment or to gain portfolio diversification, mutual funds are great option to look into to. Finding the top mutual funds will take time and patience, but taking the time to invest wisely will ensure that you are protecting your future and that your money is taken care of.

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