Quote:
|
Originally Posted by oScottio
so my question is...
1) what sources do you use to research stocks, bonds, etc?
2) what sites do you use to trade?
3) where have u put ur money for long term or retirement?
***keep in mind that i have a small business for myself so i gotz no 401K
4) what short term investments are good to just make some quick cash..relatively speaking.
thanks for any inputs =)
|
With regard to investing in financial market instruments, you have two options; farm it out or go it alone. Since your situation is uncomplicated, I think you could handle designing and implementing a simple plan on you own. All you really need do is educate yourself to understand the three keys to successful long-term investing. Since I strongly disagree with some of the advice given, plus it's Friday and I'm a tad bored, I'll give that a shot:
-
Proper Diversification: The goal of proper portfolio diversification is to reduce risk while increasing the overall return. This is done by investing in different asset classes, each of which exhibit dissimilar characteristics. For example, if two investments behave in a like manner and have similar total return patterns over time, they are said to be positively correlated. Two positively correlated investments will provide little or no diversification, and will usually increase or add to investment risk. By combining investments in asset classes that do not move in tandem, one can lower the overall volatility of their investment portfolio. Broad diversification across investment styles and asset classes helps reduce portfolio volatility and can also increase the potential for long-term return.
-
Accurate Assessment of Risk Tolerance: “Risk” in an investment context is generally defined as standard deviation or, said more simply, the degree of peak-to-trough volatility within your investment portfolio. Each investor has their own particular comfort level, and that level of comfort will determine the level of risk that they are willing to accept in the market. While you cannot, of course, eliminate the risks inherent when investing in the financial markets totally, doing a careful risk tolerance assessment to determine your appropriate risk level will allow you to create a custom investment portfolio in line with your own personal comfort level.
-
Correct Determination of the Appropriate Asset Allocation: Asset allocation is the process of dividing an investment portfolio among various asset classes to:
1.) Maximize the return for a given level of risk, or
2.) Minimize the risk for a given level of return.
Fundamentally, the main objective of asset allocation is to settle on a risk/reward level that is comfortable for the investor and best meets his or her needs. There are three (3) general asset classes that are used by typical investors:
- Cash and Cash equivalents
Fixed income Securities (Bonds)
Stocks (also referred to as equities)
Additionally, these three asset classes can be broken down further into smaller sub-asset classes, each having its own particular characteristics, i.e., 'growth' vs. 'value' stocks. When determining a suitable asset allocation strategy, an investor must:
1.) Determine which asset classes to include in the investment portfolio, and,
2.) Determine the percentage to be allocated to each of the selected asset classes based on his or her tolerance for risk.
Each asset class has its own unique characteristics causing it to behave differently than other classes in a given economic or market environment. Ideally, poor performance by one asset class will be offset by superior performance by the other classes. This interaction among different types of classes is referred to as positive or negative correlation and results in a more stable and predictable return over time. The importance of asset allocation has been demonstrated by numerous studies that indicate that the asset allocation strategy accounts for more 91.7% of a portfolio`s long-term performance as compared to 2% for market timing and 4% for individual investment selection.
Although asset allocation and diversification are related concepts, they are not the same. Asset allocation involves a determination of what percentage of a portfolio should be committed to each asset class. Diversification, on the other hand, refers to the process of selecting individual investments within a particular class. (Example: Asset allocation determines that 60% of a particular portfolio should be devoted to stocks, 30% to bonds and 10% to cash and cash equivalents. The investor then seeks to ensure diversification by selecting stocks from various industries, company sizes, etc.)
Asset allocation then, is a process that measures the weighting, by class, of various types of investments in a n investor's portfolio and tailors these investments to minimize risk for a desired level of return or maximize the return for an acceptable level of risk. Asset allocation and diversification when used together help reduce risk and maximize return. The investor must first allocate specific percentages of his or her investment portfolio to various asset classes and then diversify the within each class by purchasing individual investments.
Although asset allocation is an objective and scientific process, that doesn`t mean that there is only one "ideal" mix of asset classes. In reality, the number of combinations is virtually unlimited, allowing an investor to construct a portfolio that is tailored to his or her specific needs. The starting point to implementing an asset allocation strategy is to answer three questions:
1.) What return does the investor need to earn to achieve his or her financial goals?
2.) How much risk will the investor assume to achieve the desired return?
3.) What is the investor's time horizon?
All portfolios are unique but all follow basic strategies, each of which are based on the investor's risk tolerance. Due to the complexity of the calculations, it is almost impossible to design an efficient asset allocation strategy without the use of sophisticated computer software. Once you have determined the correct asset allocation, assuming you like mutual funds as your investment vehicle of choice, it is quite simple to compare the performance of mutual funds within a particular asset class to their entire peer group. Morningstar is the biggie, but even yahoo and msn offer decent, customizable parameter screening programs.
Personally, I would not recommend that you automatically exclude funds that charge a sales load, as superior performance and sales load are not automatically mutually exclusive. The key, rather, is to find a high consistency of top performance - relative to peer group (i.e., top quintile peer group performance for 1, 3, 5, and 10 year periods which encompass all market conditions) - NET of fund expenses. Many 'loaded' funds offer annual management fees significantly below 'no-load' funds; you must read the prospectus. IMO, the best example of top performing 'load' funds can be found in the American Funds Group family of funds, managed by Capital Guardian. These funds have consistently outperformed the majoriy of no-load funds within the same peer group.
That said, while many feel mutual funds may have a place in the portfolios of some investors because of the automatic diversification and on-going management, I believe they are inherently flawed and do not recommend them. For example, one of the so-called strengths - active, on-going management - is actually an automatic strike against you. Why? Because the vast majority of mutual fund managers fail to consistently outperform their benchmark index. If you are a long term growth investor and, therefore, your benchmark is the S&P 500 risk-adjusted return, how wold you feel if your manager outperformed on average 2 out of ever 10 years? Dunno about you, but I'd FIRE him in a heartbeat! Remember, a very large part of the risk inherent in mutual fund investing has to do with security selection, but not all. Another problem is that mutual fund managers are constrained by the investment vehicle itself. They must remain almost fully invested regardless of market condition, and may be forced to firesale securities in a down market to meet short-term oriented shareholder redemption requests... something that might be at direct odds with your long-term goals of dollar cost averaging while prices are temporarily depressed. With those 'handcuffs', it's no wonder they have a horrible history of underperforming.
Now, here's the advice part:
Most mutual fund companies, i.e. Fidelity, Vanguard, etc., have investor questionnaires to help determine a general asset allocation on their websites. HOWEVER, the best way to effectively remove all mutual fund manager risk of underperformance and insure you actually do earn the benchmark return, IMO, is to use Exchange Traded Funds (ETF's) in place of mutual funds. ETFs are liquid securities that trade on the stock exchange and mirror the performance of the underlying benchmark index. It's easy to fill the asset allocation classes in your model portfolio with a cost effective (read: very low annual management fee, lower in almost every instance than no-load mutual funds), buy-and-hold index proxy. All you need do is check periodically to determine if re-balancing back to your initial allocation is necessary.
Yes, you can do it! I would start with the above long term strategy in a retirement account such as a SEP-IRA, and forget about trying to 'strike it rich' with short term trading. Take and blow that $$ on a dame, the odds are better you have at least some success.
investment ideas?
WOW 
