Avoid Common Investment Mistakes

Avoid Common Investment Mistakes

Whether you're an expert investor or a beginner like most people, these tips can help you keep your portfolio on track and your mind at peace. Happy Investing!



Don't panic or overreact to market shifts.

These days, the stock markets have been extremely volatile. The worst thing you can do is to react emotionally to these dramatic shifts and try and time the market. Unless you have a lot of time to watch minute-by-minute swings in the stocks in your portfolio, it's best to keep a long-term perspective on your investments. DON'T panic.

Maintain a diversified portfolio.

Basically, this means don't put all your eggs in one basket. Having diversified investments (instead of putting all your money into one stock or a single sector) will protect you against radical market swings.

Periodically reassess your asset allocation.

Your portfolio should incorporate your particular risk tolerance and financial objectives. So monitor your portfolio periodically so it stays on its targeted asset allocation.

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Analyze Your 401(k)

I used to pick my 401(k) funds with a dart board. Now, I know how to figure out which ones make me more money. Read on to find out what I've learned about how to compare one against another.

Log on to Fidelity, Vanguard or the financial institution where your 401(k) sits.

Write down the name (and ticker if it's there) of each fund in your portfolio.

Go to yahoo.finance.com.

Type in a stock ticker.

Click on "charts" on the left hand side.

Add all of your stock tickers to where it says: "add compare symbol(s)." You will have a visual of all your mutual funds on one single chart.

Look at your chart and see how well your mutual funds have done over a long period of time. You want to track a long period, 5 or 10 years because the daily, weekly and monthly market is sporadic.

If you've got some bum funds, take a look at what other funds available to you that you can exchange. Note their tickers.

Chart those compared to your funds to find a replacement.

Track your new funds on a quarterly basis to see how well they do.

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How to Understand Index Funds

Why all the excitement about index funds? They charge low fees and their performance is consistent with the market.

Understand that mutual-fund companies generally invest in a mix of stocks, then professionally manage the portolio. The fund operates on money provided by individual investors.

Know that mutual-fund company charges investors fees for managing the portfolio, even though many funds underperform the market over time.

Gauge the performance of the market by studying market indexes such as the Russell 2000 or the Standard & Poor's 500. These indexes show the combined performance of hundreds of stocks over time.

Know that an index fund is a mutual fund that invests in stock that mirror particular index such as the S&P 500 or Russell 2000. The funds are designed to perform as the market performs.

Gather information about various stock indexes. The Russell 2000 consists of small-cap stocks; the S&P 500 consists of large-cap stocks. The Nasdaq also has several indexes.

Find out which mutual-fund companies offer index funds. Magazines such as Money, Kiplinger's and Smart Money regularly run lists of mutual-fund companies.

Compare how much the companies charge in management fees for their index funds.

Remember that management fees for an index fund should be low. The company has no tough investment decisions to make.

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Prepare for a Recession

Prepare for a Recession

With recession on the lips of every economic analyst it is no wonder that people are scrambling to figure out how this decline will affect them personally. This article will provide tips on how to financially prepare for the inevitable recession approaching.

The first thing we should be doing to prepare ourselves for a recession is to create a safety net. This can be done in the form of a savings account with enough money to cover six months of living expenses. The money should be in a savings account so that you can access it at any time in case of an emergency, such as layoffs, sickness, etc.

The second most important thing we should be doing is to cut costs where ever we can. This can be done in numerous ways. Eliminating a second or third vehicle is one. Minimizing your energy bill is another. You should begin this process by writing down everything you are bringing in and everything going out. You will likely be amazed at how much money you are spending on things you don't really need.

Need brings us to the third thing we should be doing. With your list of what is coming in and going out, also keep track of your "needs" and your "wants". During this volatile time in the economy, you will want to eliminate the wants and find ways to cut costs of the "needs". Here are some suggestions for doing just that: As an alternative entertainment, visit the local library and check out a book or two. There are a variety of great dvds available to loan at no cost, as well. Get rid of all the extra channels on your cable that you aren't watching, anyways. Clip coupons, and here's something new - USE THEM. But, only buy things you will use normally. Offer to carpool to work, kids soccer practice, grocery store, etc. Do you really need that mocha latté from Star bucks every morning And afternoon? Maybe you can cut down to one cup a day or eliminate it all together. There are endless ways to cut down on your daily expenses. You just need to be determined and decide that you want to be an ant and not a grasshopper. You'll be glad you did.

Many companies go under during a recession and many down size. You may want to touch up your resume and keep your networks up to date. Even if you couldn't imagine yourself not working for company ABC, you never know when life or a recession will throw you a curve ball. Being prepared is the best advice I can offer.

Now, that you've figured out where to cut costs, it is time to increase your income. Look around your home for things you can resell on Ebay or have a garage sale. Take classes to enhance your skills and look for a better job, but remember that the last one hired before a recession, is usually the first one to be let go after it hits. If you have teenagers, put them to work. At least it will cut down on your "extras" expenditure and with homework and a job, they won't be using lots of free time to rack up text messaging bills.

To review, the best way to prepare for a recession is to create a safety net of a savings account with six months of living expenses. Cut costs wherever you can. Think job security by updating resume and skills and keeping good networks. And, increase income by any legal means necessary. If you implement these tactics you will be on the right track to preparing for an upcoming recession. Even if we squeak by without fully experiencing a recession, you can rest better at night knowing you are little more financially secure than you were the day before. Now isn't that a good feeling?

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Invest in Real Estate Without Buying a House

Chicago skyline--don't forget the best pizza ever!

Ever wanted to invest in a mall? How about a skyscraper in your favorite city? It's simple, and you can it with less than you think.

Buying real estate does not solely apply to buying a home and signing documents for an hour. It can be done in less than 5 minutes if you know how. Identify the type of real estate you are interested in--say, retail spaces (shopping malls), vacation properties (hotels) or even professional buildings (offices). If you are like most investors, you want to make the most money, right?

Do your own research on a financial website, like MSN Money or Google Finance (two of my personal favorites). If you don't know how, don't panic! Consult a financial planner or just ask for guidance in the comment section. Identify the top performers over the past 5 years. Real estate in 2007 has been a tumultuous up and down period, so base your results on a longer timeline. Go back 10 to 20 years if you so choose.

For example, I have chosen the Prologis Corporation under the ticker symbol "PLD" that trades on the New York Stock Exchange, just like any other regular stock. They own about 2,500 industrial-associated properties all around the world.

Look up the stock symbol to see company's current price. In my example, the closing price for PLD on January 17, 2008, is $53.20.

Calculate how much money you will need to buy 100 shares and make your purchase. For PLD:

100 shares x $53.20/share = $5,320

To purchase 100 shares will require $5,320 plus a broker's commission, which can be anywhere from $4 for online brokers to hundreds depending upon your broker, so choose wisely.

Know what your are buying. PLD is a Real Estate Investment Trust, or REIT. REITs are companies that own and operate real estate properties that range from skyscrapers to farmland, which can generate income just like a second home at the beach to rent out during the summer to earn extra cash.

Calculate your compensation. In my example, PLD pays a dividend every 3 months as long as you hold onto your shares. For example, the payout each 3 months for 1 share of PLD for 2008 will be $0.5175 per share, and I bought 100 shares.

100 shares x $0.5175 = $51.75

But it pays this every 3 months, or 4 times each year. So:

4 payouts x $51.75/payout = $207

Keep in mind your total value. Remember, I still own the actual shares of PLD as well, so I also need to calculate this value.

In PLD's case for 2008, let's pretend to fast-forward. Say it goes up 10 percent from the purchase price, which equates to $58.52 per share. So not only do I get a nice little dividend paycheck of $207, but my total share price is now worth $5,852 for a profit of $532. In total, I made a pretax profit of $739.

You're not Donald Trump, but you're on your way.

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Invest in Money Market Funds

Of all the different types of mutual funds, money market funds have long been regarded as one of the simplest and safest to invest in. Money market funds usually try to stay at a net asset value of $1 per share, allowing investors to earn money on the fund's capital gains and dividends rather than on the sale price of the shares.


Understand Money Market Funds

Learn to evaluate a money market fund's simple and/or compounded yield. A fund's yield is expressed as a percentage, indicating the average profit generated per $100 invested. For example, a money market fund with a yield of 1.9 percent earns $1.90 on average over the indicated period of time per $100 invested.

Check a money market fund's 7- and 30-day yield averages, in addition to its annual average. Keeping in mind that most money market funds have a maturity period of under 90 days, you can use yield averages to determine a particular fund's potential profitability. A fund's short-term versus long-term yields are a direct indicator of how well it is performing.

Bear in mind that some money market funds are tax-exempt. Mostly, these funds are ones that invest in sources of untaxable income, such as short-term government bonds.

Invest in Money Market Funds

Check out the various opportunities to invest in money market accounts offered by your regular financial institution. You may be able to get more favorable account terms from a bank you've been dealing with for a long time.

Have enough capital on hand to meet the minimum balance you may be required to keep in your money market account. It is common for financial institutions to bind investors to a minimum balance in the $15,000 range.

Use the Internet to find online and wholesale banks that offer investors the most favorable terms. However, be sure to check into any online brokerage you are considering investing with to ensure its legitimacy if it is not one of the financial world's well-known names.

Monitor the markets without plunging in for a while before you commit your capital to a particular money market fund. It's a good idea to follow a fund you're considering investing in closely for a period of several weeks to see if it performs as you expected it would.

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Invest $100

You may be wondering how you can start investing with very little money. For example, if you recently received $100 as a gift or from your tax return and you want to save it and make it grow, these ideas are great investments. You'll be surprised how quickly your money can increase and how much fun you can have investing.

Open a savings account. This is the simplest option. Simply go to your local bank or shop around online for the best rate. You probably won't earn much, but your money will be safe.

Invest in CDs. Certificate of deposit accounts, or CDs, allow you to invest your cash for a set period of time (3, 6, and 12 months or longer). You lock in a guaranteed rate of return which is paid to you plus your initial $100 at the end of the term. Some banks give you the option to receive your interest monthly. One caveat is that most banks have minimum deposit amounts that are usually $1000. However, if you invest with ING Direct, you can open a CD with any dollar amount.

Purchase stocks. Like CD accounts at banks, many brokers have a minimum investment amount to purchase stocks. Sadly this amount is much larger than $100. Don't fret though, all is not lost in this category. Some discount brokers now exist online that will allow investments of $100 or less. My favorite example is Share Builder. You can invest your $100 in any stock you like (as long as it is on their approved list as most are). You could even invest $50 each in two stocks. Share Builder does charge $4 for each stock purchase, however. Let's say you want to put your entire $100 into stock of the company you work for. If the share price is $75, you would receive 1.28 shares for $96 with $4 going for the purchase fee. If your company pays dividends, Share Builder will reinvest them in partial shares for no charge. This is one of the best options for purchasing stocks with $100.

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Identify High Paying Dividend Stocks

With the right stock, dividends can be a great feature. Dividends are payments made by a company to its shareholders. When profits are made, the company can either re-invest in the business, or it can be paid to the shareholders as a dividend. Dividends can be paid out in the form of cash, or in some cases reinvested as additional shares for the shareholder. But where are these dividends? And who's has the best ones?

Figure out your investment budget. This is something I live by. It doesn't take a ton of money for an investment to pay off. And a high priced stock may look nice, but if you can't invest in enough shares, it won't do a thing for you. Know your budget. Know your boundaries.

So where do we find these dividends?

You can either surf the net for a stock screener (There are plenty of free ones out there) or you can go right into your Brokerage account and if they're doin' anything with those lovely fees you pay them, they should have a screener right there for you. I personally use E*TRADE's stock screener. It fits the micro stocks I'm interested in, and is fairly user-friendly.

Dividend Search Here is a shot of E*TRADE's options for filtering through dividends on stocks. In the screener, just input the criteria you'd like for your stock to meet and take a look around.

Don't forget to rate and comment on this article!

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Get the Most from Your Savings Account by Using Short-Term CD's

A certificate of Deposit (CD) can offer a better Return On Investment (ROI) than a savings or money market account; but how can you get this without locking up your savings for a substantial amount of time? I've got a surprisingly simple solution. Read on to learn more.

A great way to get a high yield on your cash is by placing your funds into a bank CD. However, the drawback is that you cannot have access to these funds until a pre-determined time has elapsed. In essence, you are loaning money to the bank and they pay you interest payments.

To find the highest yielding interest rate, go online and search for highest interest rate (or ask me). In this case, we will choose one of my favorites at Indymacbank.com. (As of today, they were offering a 5.4% rate for a 3 month CD).

Open your account online, and when finished fund the account with the required minimum. In this case, the 3 month minimum is $5000. If you can't afford $5000, that is no problem. Other banks offer CD's much lower than this example, but you will get a lower interest rate.

Here is the secret, setup the account so that you deposit $5000 on the first of each month for 3 months. Since this is a 3 month maturation rate, after you make your first 3 deposits over a period of 3 months, the first month's CD will be available for withdrawal if a financial need arises.

See these examples:
Jan 1, 2008 --> $5000.00 @ 5.4%
Feb 1, 2008 --> $5000.00 @ 5.4%
Mar 1, 2008 --> $5000.00 @ 5.4%
Apr 1, 2008 --> Jan 1, 2008 funds available!!!
May 1, 2008 --> Feb 1, 2008 funds available!!!
Jun 1, 2008 --> Mar 1, 2008 funds available!!!

What do you do with the profits? If you do not require them, but want the liquidity (available cash) in case of emergencies, keep investing the original $5000 plus interest every 3 months when the CD matures.

To continually reinvest your funds each month, give the bank a phone call to speak to a savings manager. Tell him you would like to setup an automatic reinvestment plan that does not require any monthly maintenance from you. They will take care of the automated processes themselves, and you can sit back with peace of mind without messing around with more paperwork.

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