Investments 101

Available Investment Options

When it comes to investment options, there are many types of investments to choose from that can be made using different investing styles.

Some of the investment options available include mutual funds, stocks, ETFs, and closed-end mutual funds as well as shares that can see you own part of a company. Let’s look at these in more detail.

1.    Stocks

Investing in stocks sees a buyer venture into an opportunity that allows them to play an active part in the success of a company through buying shares that subsequently help increase the company’s stock prices and dividends it declares. The purchase of the shares makes the buyer a shareholder of the company that giving them a claim in the business’ assets during liquidation though the buyer does not own the assets.

Shareholders that are holders of common stock have a voice (voting rights) that can shape the direction the company takes. They also are entitled to receive dividends when the business declares them. Those that are holders of preferred stock may not have the same voice but enjoy a high preference for dividend payments over the common stockholders, and they also have a higher claim on the company’s assets.

2.    Bonds

When dealing in bonds, you are investing in debt instruments whereby you are loaning money to a business or organization (the issuer) expecting periodic interest payments in return along with the full amount of the bond’s value upon is maturity. In most cases, bonds are issued by the federal government, governmental agencies, state depart, and municipalities as well as some corporations.

A bond will have a face value (e.g., a corporate bond can be $1,000) with interest paid semi-annually. Interestingly, interest on municipal bonds is tax exempted while that on corporate bonds are taxable. The municipal bonds can also be exempted from state taxes for those residing in the issuing state. As for treasury bonds, their interests are only taxed at the federal level.

You can invest in bonds as new offerings or find them on the secondary market as you would when you invest in stocks. The value of a bond can go up or down depending on various prevailing factors, with the direction of the interest rates as per market influence being the most significant factor. The prices of bonds are often inverse to the direction the interest rates are headed.

3.    Mutual funds

Mutual funds are regarded as simpler investment game because the investment is often made by someone else. With this option, the investor will put money into a pooled investment that’s under the stewardship of an investment manager who put the money into stocks, or bonds, or any other investment option as stated in the brochure. Buying or selling of shares are done after the market closes and the valuation of the mutual funds is done at the end of the day’s trading.

With this type of investment, the investor can passively track the stocks and bonds indexes on the market such as the Barclay’s Aggregate Bond Index, the S&P 500, and others. Conversely, some mutual funds are actively managed by having bonds, stocks and other investments under the fund actively selected by an investment manager. However, such mutual funds are a pricey investment plan. The underlying expenses of a fund should aim at reducing the net investment returns to the holder of the mutual fund.

piggy-bank-funds

Mutual fund shareholders can enjoy dividends, capital gains, and interest, and all these are taxable when held in a non-retirement account. And just as with an individual stock or bond, the sale of a mutual fund can yield a profit or loss.

The beauty of mutual funds is that a small investor can have an instantly diversified exposure when buying several investment holdings that are within the fund’s portfolio. For instance, a mutual fund of foreign stock and have more than 50 different types of foreign stocks, and an investor can own all these holdings with an initial investment amount of a little as $1,000.

4.    ETFs

Exchange-Trade Funds (ETFs) mirror mutual funds to some degree but are traded on the market during the day’s trading window just like the shares of stock. However, ETFs are not valued in the same way as mutual funds at the end of the day’s trading. Their valuation is recurrent during the period when the markets are open.

But like with mutual funds, ETFs also passively track market indexes such as the Russell 2000 index of small-cap stocks, S&P 500, Barclay’s Aggregate Bond Index and others. Over the last couple of years, actively managed ETFs have evolved to be known as “smart beta ETFs” since they create indexes based on dynamics such as momentum, quality, and low volatility.

5.    Alternative investments

Investment options stretch beyond those of stocks, bonds, mutual funds, and ETFs. Real estate investments are a perfect example and can entail transactions such as the direct purchase of a residential or commercial property. Investors can do this through REITs (Real Estate Investment Trusts) where their money is pooled for the procurement of real property. REITs are trades the same as stocks and some ETFs and mutual funds invest in REITs.

Other investment options that fall under this category include private equity and hedge funds. However, qualification for investing in these options are restrictive where only those that have an income and net worth that meets set requirements are accredited the opportunity to invest in them. The elitism of hedge funds can be attributed to the fact that they hold up better than the conventional investment options during turbulent times in the market. As for private equity, companies can offer such with the aim of raising capital without having to go public.

Some private real estate funds can also fall under the category of alternative investments. Liquid alternatives are yet another option, and these are more of ETF and mutual fund formats that allow the investor a lower minimum investment with great liquidity. It is prudent to point out that most of these alternatives tend to be restrictive when it comes to how frequent an investor can access money.

Invest Safely with the Help of a Professional CFP

How a Professional CFP can help with Investment Decisions

Everyone wants to make a pile of money on their investments. But, the means of earning money can be tough, especially when there is so much competition both in the business world as well as the employment sector. One alternative is to invest money in companies in the form of shares and bonds. However, if you do not have any experience in this field, it is important to hire the services of a certified financial investment consultant. There are many consultants who could help you to invest safely in companies that will provide a sufficient rate of return. Investing in shares can be an easy way to make money if you are not getting a job. But, it should be done under the guidance of an investment consultant to minimize risks.

Why hire an investment consultant?

Even if you have knowledge about the stock market and how the different markets work at different times of the year, it is important to opt for the services of an investment consultant. So, why exactly is the investment consultant guy so important? Here’s why:

  • Assessing your financial position – the first duty of an investment consultant is to go through your financial records to understand how much you can invest and where you should invest. Since there are lots of investment opportunities, assessing the financial position becomes important. It helps to set a specific set of financial goals depending on that financial position and an investment consultant will guide you to meet those goals as and when the time comes.
  • Setting realistic financial goals – yes, you may want to earn millions by investing hundreds but that may not be a realistic goal after all. A realistic goal is one that satisfies your financial position. Your investment areas should be safe so that you don’t lose money.
  • Finding out the best financial strategies – in addition to assessing the financial position and setting financial goals, the consultant will also look for comprehensive plans that will meet the financial goals. After he/she has found out the best financial instruments to invest, the investment consultant will carry forward the documentation and follow the plan of action. He/she will also monitor the progress after you invest.
  • Improving financial goals – anyone who invests money does not have the desire to remain stagnant with the same financial goals year after year. The more you earn, the more you want to improve. Your financial goals will also change as you earn. These goals will also be fixed by the investment consultant. It is their job to constantly assess your financial position so that you can invest in better financial instruments and earn more money.

There are times when you need guidance for even the smallest job at work. It doesn’t mean you cannot do the work on your job. It is just to make sure you do it well. Similarly, hiring an investment consultant will only do you good as you will be guided to the best financial plans that can help to earn money safely.

Steps to Becoming a Stock Trader

New York stock exchange

Stock Trading – Top 10 Tips

Stock trading beginners should have access to numerous sources of information when looking to learn the basics of investing. The desire to press on combined with trial and error will chart the way to success, just like riding a bike.

The fact that the investing game lasts a lifetime is considered to be one of the main advantages of stock trading. When it comes to honing and developing their skills, seasoned investors have years of experience. Today, we still find strategies developed two decades ago useful. The stock investing game is always in full throttle.

For investors asking themselves, “How do I get started?” I have compiled a list of ten of the best answers.

1. Register An Account With A Stock Broker

Open an account with your preferred online stock broker. Take the opportunity to practice using the free research and trading tools limited to clients, on top of familiarizing yourself with the layout. You can even practice trading with the fake money in the virtual trading resources offered by some brokers. Visit StockBrokers.com if you are interested in a great tool for comparing online brokers.

2. Study Some Books

Compared to the cost of educational DVDs sold online, seminars, and classes, study books are an informative option that is more affordable.

 3. Go Through Some Articles

When it comes to education, articles are a great choice. More than a hundred unique articles on investment are broken down into different categories. StockTrader.com, Google Search, and Investopedia.com are our recommended investment education websites.

4. Get Yourself A Mentor

Any person who has a basic understanding of how the stock market operates can be your mentor, be it a friend, family member, colleague, current or past professor etc. some of the characteristics of a good mentor include willingness to offer assistance, ability to offer solutions to your questions, offer encouragement when the market is tough and even recommend worthwhile resources. During their early stock trading days all successful investors, present and past, had mentors.

Another great resource for questions and answers is forums. Trade2Win and Elite Trader are highly recommended. Just be sure to take your advice from the right members. Let alone being profitable, most contributing members aren’t professional traders. Never follow trade recommendations under any circumstances from forums, and use extreme caution when taking any advise offered from anyone you don’t know.

5. Learn From the Legends

To appreciate, get inspired and gain perspective on stock trading, learn from some of the greatest stock traders from the past. Peter Lynch, Jesse Livermore, John Templeton, George Soros, Pual Tudor Jones, Benjamin Graham and Warren Buffet among others are some of the best names to read up on.

6. Follow and Read Up On The Stock Market

Some of the best resources beginners can use to follow the markets include news websites such as Google Finance. You should look no further than Bloomberg and the Wall Street Journal for detailed coverage. Traders can learn about economic concepts, third party analysis, general business and trends by simply reading headline stories and following the markets on a daily basis. Another great source of exposure for new investors to consider involves fundamental data observation and puling quotes.

With CNBC being the most popular channel, TV is another way to follow the market on a daily basis. Traders can widen their knowledge by watching CNBC for as little as 15 minutes daily. All you need to do is watch and allow the discussions, interviews and comments to soak in, while ensuring that the style of reporting or language used do not become a distraction. With time however, you will learn that most of the stock trading TV shows are composed of worthless recommendations and are more of a distraction, beware. You are not alone as this is part of the natural course of evolution.

7. Check Out Paid Subscriptions

It might be useful and educational for you to pay for research and analysis. Instead of trying to use newly learned concepts on their own, some traders may find observing and watching market experts to be more advantageous. Here, the secret is to find the right paid subscription(s) as per your needs, from the variety of available websites. A collection of the services I use is available for your perusal. Morningstar and Investors.com are two of the most reputable services.

8. Attend Class And Seminars

When it comes to shedding light into certain types of investments and the market at large, seminar can be an invaluable option. In most cases, while looking at one side of the stock market, seminars look at how the speaker has found success through utilization of their own strategies in the past. Mark Minervini and Dan Zanger are two good examples. It’s worth mentioning that attendees are not required to pay at all seminars. It’s best to be wary of the sales pitch that’s always slated at the end, even though some seminars are free to attend, and can provide for an enriching experience.

9. Practice Trading On A Simulator Or Using The First Batch Of Stocks You Buy

The best way to kick start your stock trading journey is to simply dive in, having registered your online stock broker account. You can get in the game with one, ten or twenty shares, so don’t be afraid of starting small.

You can look into virtual trading on a stock trading simulator if trading with real capital is just not possible at the beginning. For practice purposes, most online brokers offer paper or virtual trading to their members. Paper trading is great practicing technique described in the video below.

Trying to score big by going all in with a full stock portfolio right from the start is one of the most common mistakes made by beginners. Many new traders suffer huge losses at the initial stages as a direct result of making this painful misstep.

10. Learn From Warren Buffet, and Passive Index

Trades will end up in a losing position for most. Instead of trying to get one over the market on their own, the greatest investor in history, Warren Buffet encourages individual investors to passive index.