Investment Tips : Record Keeping

Investment Tips : Record Keeping :

Hi all!

This week we are going to discuss on tips of investment

As mention that investment itself is versatile, that only a better prepared individual can gain from it;

Once you start down the path to investing, one thing that you'll notice is that the paperwork piles up fast.

You'll get a confirmation every time you buy or sell a stock or mutual fund, and every time you move money in or out of an account and of your investment accounts, a statement at least once a quarter will be send to you.

Not to mention each of those account statements will probably include a couple of transactions, such as dividends you're received or interest that's been credited to your account.


If you invest using dividend reinvestment plans (DRIPs), you'll have another set of statements to deal with, for each DRIP and for each transaction.

Every time you buy a mutual fund, you'll receive a prospectus in the mail.

Stocks you own will send you quarterly and annual reports and proxy statements.

So??

Obviously, You'll be drowning in paper if you don't get organized.

Being organized provides two other important benefits:

Firstly, You'll be better equipped to know how much of your investing profits you'll owe to the IRS, and can make better decisions regarding the tax implications of any investment decision.

Secondly, You'll be better equipped to figure out how well your portfolio has been performing and what problem areas you might need to address.

Strategies and Concepts of Basic Investing : Random Walks of Financial Market

Random Walks of Financial Market :


In the 1960s, a new theory about the market developed by  Eugene Fama called the Efficient Market Hypothesis and it can be determined that, 


At any given time, the prices of all securities fully reflect all available information about those securities. (Info = price of securities)


While that sound radical,


Most people who buy and sell stocks assumes that the stocks they are buying are undervalued and therefore would worth more in the future than the purchase price.


This is as the same as the scenario when you haggle with a car dealer over the price of a new car, instinctively; you're aiming for a price that's less than retail generally.


Similiarly, when you buy a stock, you're also hoping that other investors have overlooked that stock for some reason, 


In effect giving you the opportunity to buy for "less than retail."


However, under the Efficient Market Hypothesis, any time you buy and sell securities, you're engaging in a game of chance, not skill. 


If markets are efficient and current prices always reflect all information, there's no way you'll ever be able to buy a stock at a bargain price.


Fama also asserted that the price movements of a particular stock will certainly not follow any patterns or trends at all.


Past price movements cannot be used to predict future price movements.


This is called this the Random Walk Theory -- stock prices move in an entirely random and uncertain fashion, and there's no way to ever profit from "inefficiencies" in the price of a stock.


Ultimately, this results in the Efficient Market Hypothesis and Random Walk Theory are controversial.


Questions!


If you can't predict stock prices, and picking stocks is really a matter of luck, how are we supposed to invest? And what are all those people on Wall Street doing, anyway?


Once you've resigned yourself to never beating the market, the Random Walkers say, you can be satisfied with matching the returns of the overall market.


Instead of picking stocks or individual mutual funds, you should invest in the entire stock market. 
You can do this by investing in index funds, special mutual funds that are designed to allow you to match the returns of the overall market. 

Strategies and Concepts of Basic Investing : Investment Auto-Pilot

Investment Auto-Pilot :

I sure most of us would had asked this question to yourself before,

"Is this the right time to get into the stock market?" 

or replied, 

"The market's too high now. I've missed my chance," 

Today I would like to introduce to you the power of dollar-cost averaging where this will soon make you forget those question and answer from earlier after you learned the power that can be derived from it.

          

Here's what dollar-cost averaging is all about: 

It is putting the same amount of money each month into an investment, such as a stock or a mutual fund. That's all. refer to Currency-Cost Averaging

Many will ask "Why put money in the stock market every month?"

Because the markets,generally; while having bad days -- even bad years -- it tends to go up over time. 

Using the dollar-cost averaging method,you won't have to track and time the market.

Buying stocks in a falling stock market sounds easy, but most people don't have the gut to do it. 

In fact, the stock market is the only place where people seem to get more interested when the prices are being raised. 

They seem to lose interest when stocks are "on sale."

Dollar-cost averaging is easy to understand, even easier to do, and will have a very positive long-term effect on your portfolio.

Strategies and Concepts of Basic Investing : The Portfolio Theory of Investment

The Portfolio Theory of Investment :

Contemporary Portfolio Theory

The history of investing in the United States is divided into two periods: before and after 1952.

Why?

Well, it was the year that an economics student at the University of Chicago named Harry Markowitz published his doctoral thesis which is now known as Modern Portfolio Theory.

How important was Markowitz's paper that he received a Nobel Prize in economics in 1990 because of his research and its continuing effect on how investors line of attack in investing today.

It starts out with the assumption that all investors would like to elude risk on every occasion possible and defines risk as a standard deviation of expected returns.

Rather than look at risk on an individual security level, Markowitz proposes that you measure the risk of an entire portfolio.

When considering a security for your portfolio, don't base your decision on the amount of risk that carries with it.

As an alternative, consider how that security backs to the overall risk of your portfolio.

Markowitz then considers how all the investments in a portfolio can be anticipated to move together in price under similar conditions called "correlation," and it measures how much you can expect variation of different securities or asset classes in price relative to each other.

For example, high fuel prices might be good for oil companies, but bad for those who need to buy the fuel.

As a consequence, you might expect that the stocks of companies in these two industries would often move in conflicting directions.

These two industries have a negative (or low) correlation. You'll become better in the diversification of your portfolio if you own one airline and one oil company, rather than two oil companies.

When you put all this together, it's completely possible to form a portfolio that has much higher average return compare to the level of risk it contains.

So when you build a diversified portfolio and spread out your investments by asset class, you're really just managing risk and return brought by the asset rather than the asset itself.

Strategies and Concepts of Basic Investing : Asset Allocation

Asset Allocation:

Asset allocation is the main instrument in the conflict to build a diversified portfolio.

This is where the task of presuming how much of your portfolio will be invested in different asset classes, such as stocks, bonds, or cash.

Asset allocation or apportionment has been acknowledged as a very significant part of the development of a portfolio.

Actually, a study has found that your choice as to the way you divide up your portfolio into numerous classes is more vital than the process of selecting the actual assets and funds that you will own.

Thus, in developing your asset division strategy, remember that,

Usually, the younger you are, the more risk you can afford to take. (Aggressive risk taker)

As you get older and nearer to retirement, you will more likely is less captivated in the growth of your portfolio and more engrossed in capital preservation –

This means to protect the value of your portfolio from any declines.

While preserving your portfolio as you reach your preferred retirement age becomes more essential because a large deterioration in the value of your assets can upset your retirement regime and making it impossible to retire according to your plans.

Most brokerage firms preserve a recommended asset allocation for their customers.

The firm’s investment strategist determines the optimal percentage of a distinctive portfolio that should be invested in specific asset classes at any time, and bring up-to-date the asset allocation strategy on an unvarying basis.

There are also consultants who recommend a portfolio that's always invested fully (100%) in stocks, this is because that this asset class distributes the best return.