In today's information driven society, we have more choices about financial strategies than ever before. Every time you turn on the television, a barrage of ads can be seen that proclaim a wide variety of financial companies with endless approaches. Does one company clearly proclaim what makes them different from another?
Also, if you should decide to search the Internet, you will discover a mind-numbing list of choices. How are you supposed to decide?
There is a common sense approach to this dilemma. You must weigh the benefits against the detriments of a plan in order to decide if that is the proper strategy for you. In order to do that, you need a financial professional that will provide a comprehensive analysis and explanation of your financial situation.
Ten Tips for SMART Investors
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Live within your means… Americans are saving less and less and spending more. Keep your spending habits within your income and invest wisely for the future.
Designate funds for short and long-term use… Don't invest money you may need to keep liquid, to avoid selling assets. Remember that investing is a long-term process. Real money is made over years, not months.
Determine your risk tolerance… Once you identify how comfortable you are with taking investment risks, you can make informed decisions about your portfolio. Those who invest aggressively in a strong market only to head for the exits during a correction are unlikely to do so as well as those who remain invested for the long term.
Set reasonable expectations for return on your investments... Earning 10% to 12% a year is not easy, although it is possible. But beware of promised returns of 20% or more on a long-term basis.
Diversify your holdings… Different assets, markets and industries do not rise and fall in tandem. Keep your portfolio balanced among several types of investments.
Invest in quality securities… Solid companies that stand the test of time tend to do well during periods of market strength, and recover more quickly after periods of market weakness. If you want to try something more adventurous, consider a fund instead of single securities.
Never let a low share price be your only reason to buy a particular stock… The one or two low-price stocks that soar in a given year are the overwhelming exceptions.
Allow dividends to compound over time... Many brokerage firms offer free dividend reinvestment programs that use a company's dividends to purchase more shares of the underlying stock. The returns you earn from stock dividends can add up over the years.
Learn all you can about the companies in which you invest... Read the annual reports and earnings summaries you should receive as a stockholder and call for current company research.
Develop a Good Source of Information and Service… Does your investment firm provide a comprehensive range of services, including research on stocks, bonds and mutual funds; education, retirement, estate and trust planning; lending; stock option strategies; insurance and more at one convenient source? Does it have a strong presence in the capital markets? Do you work with a financial consultant familiar your individual situation, rather than anonymous customer service representatives? Consult your tax and/or legal advisor for guidelines.
Ten Common Errors of Investing
Here is some advice on what not to do. The following is a list of mistakes routinely made by Investors and the investment principles that can help you avoid them.
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Unclear investment objectives... Are you seeking to build wealth overtime? Do you need to preserve capital and use it to generate current income? Do you need to plan for a changing life-style? Knowing what you are trying to achieve with your money will help clarity your specific investment goals.
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Investing with incomplete understanding... It is important to consider how each of your investments fits into your overall portfolio. How does each security compare with others that have similar return? Will you have access to the money when you need it? What risks are involved?
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Investing without regard to changing market conditions... While long-term investing tends to smooth out the short-term fluctuations of the financial markets, investors should be mindful of and responsive to fundamental trends.
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Portfolio holdings are inconsistent with your goals... The extent to which you are seeking to build wealth and/or generate income will determine the amount of risk you are willing to accept. Needs and risk tolerance is the fundamental parameters that influence each investment decision.
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Portfolio holdings are over-diversified or under-diversified… Over-diversification, selecting too many different securities, diminishes the significance of an individual holding. Conversely under-diversification places a disproportionate amount of risk on one holding, industry or type of investment.
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Insufficient knowledge of tax laws... When making investment decisions, ask: "What is the most opportune time to realize capital gains and losses? Are tax-free bonds appropriate for me? How should I save for retirement? How should I borrow money?"
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Profits are taken too soon... Some investors consistently take profits early for short-term gains. That's trading, not investing. Investing is a long-term process.
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Losses are allowed to run… Many investors are reluctant to make a sell decision when faced with a holding that has incurred a loss. But if an investment performs poorly, you maybe better off cutting your losses quickly rather than waiting for a turn-around that may never come.
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Overlooking the time value of money… Many investors fail to recognize the value of compounding over time. As your money earns interest or dividends, that income may also earn income it you reinvest it. Conversely, inflation can erode the purchasing power of your dollars over time.
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Unrealistic expectations… There is no magic formula for investing successfully. Building wealth takes patience, discipline and a basic education in the fundamental principles of investing. Setting goals, asking questions and developing a sound financial plan are part of that process.
Sell or Not Sell? Here are the Questions!
Probably the most difficult judgment in portfolio management is knowing when to sell a stock. First, because most investment is oriented toward the buy side, and second, because the sell decision is usually more emotional than the buy decision. Therefore, to invest prudently, it is essential to develop a sell discipline. Toward this end, ask yourself these key questions when making a sell decision:
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Have the fundamentals of the company changed?
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Has the outlook for the economy and/or the industry changed since you bought the stock, and what impact does this have on the company's operations?
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Has the company performed in line with consensus expectations, and if not why?
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Has the stock performed in line with consensus expectations, and if not why?
What is the technical outlook for the stock, such as the support and resistance levels?
Has the stock reached your original price objective?
Given the company's outlook now, has the risk/reward profile changed from the time of purchase? How?
From a valuation standpoint, is the stock as attractive for purchase now as it was when you bought it?
What has been the tone of the last few news releases by the company and have there been any negative surprises?
Based on your objectives, are there better opportunities available elsewhere for these funds?
Based on questions 1 through 10, if you didn't own the stock now... would you buy it?
Selling doesn't have to be an "all or nothing" proposition. Review your top holdings regularly to get a clearer insight on when to begin scaling out of a position to take advantage of more attractive investment opportunities.
Remember, especially in volatile markets… patient investors are generally rewarded over a long-time horizon... so don't over react.
Can I do a Foreign Currency Exchange?
If you are buying a property abroad, emigrating, or transferring money overseas you will have to make your payment in the currency of that country.Given the sums of money involved in such a transaction and the associated additional costs, you will no doubt want to save money wherever possible. If transferring sums over a period of time you will also want to ensure that the cost of the funds does not increase due to an adverse exchange rate movement.The majority of people still approach their high street bank for their foreign currency requirements. However, a foreign exchange specialist, such as Moneycorp, is more likely to secure you a better deal. Contact our affiliate now to find out how.
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This information herein has been obtained from sources that we believe to be reliable, but HFR does not guarantee its accuracy or completeness.
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