Cash Deal for your Non-Investment Expenditures

Most personal finance gurus continually stress the importance of budgeting for monitoring and modifying poor spending habits. However, for most people who attempt to implement a family budget eventually give up on the activity, mainly because it takes the fun out of spending money. You know what, I agree! An impulse purchase here and there feels good! And as it turns out, an impulse purchase made on occasion won’t necessarily create a big problem for most us. The problems arise when we decide to make them on credit. Here’s an excellent personal finance tip for all you budget-haters out there – pay cash for all non-investment expenditures and eliminate your need to budget.

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What is a Non-Investment Expenditure Anyway?
First off, let’s define investment expenditure. By my own definition, an investment expenditure is a transaction that involves the purchase of an asset that appreciates in value. On the flip side, a non-investment expenditure represents all other transactions. One quick check you can make before whipping out your credit card to buy something is to ask yourself, “Is there a high likelihood that I will be able to sell this item in the future for more than I am paying now?” If the answer is “no,” pay cash. If you don’t have the money, you can’t make the purchase. It’s that simple.

Examples of Non-Investment Expenditures
Unfortunately, the vast majority of our everyday spending is classified as non-investment expenditures. Groceries, fuel for the vehicles, dining out, your cell phone bill, a new pair of designer jeans – these are all non-investment expenditures. Some of these items may be extremely important, even life sustaining. But purchasing on credit, even for life sustaining expenditures, encourages excess. Let’s take food, for instance. To purchase enough food for the family to survive really does not cost much money. What costs us a pile of money are the rib-eye steaks, junk food, alcoholic beverages, and sodas we routinely buy. Moreover, these foods are bad for our health! Grocery shopping with cash forces us to reconsider the food choices we make, in terms of both health and money. And that’s a good thing.

What Else is There?
You may be asking yourself, “Would any of my spending be classified as investment expenditures?” For me, two things come to mind – your home and your education. A home is rather obvious because, over time, houses have always increased in value. A college education would also be considered an investment because it provides one the opportunity to earn more money than he would otherwise make. Because these two items are considered investments, taking out a loan to pay for them can be justified. In addition, home mortgages and college loans offer some of the lowest interest rates of any form of credit, making them even more attractive expenditures.

One Caveat to Consider
Although following the above advice can eliminate the need for a budget, one other choice must be made to assure financial success in the future. An automatic investment plan must be initiated to make certain your investment accounts are funded before all the money is spent. If you work for a company that offers a 401k plan, this is done automatically. If you have outside accounts, you will have to notify the firm to initiate automatic transfers from your checking account. With most firms, you can set up the automatic transfers yourself from your online account interface.

Summary
Although a budget is a fantastic tool for monitoring and modifying our spending habits, the cold hard truth is that many of us will never stick to one. Should these folks be doomed to financial hell for the rest of their lives for this so-called lack of discipline? Of course, not! Just follow a simple personal finance tip to pay cash for all non-investment expenditures and you, too, will reach financial success in the future.

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Mobilizing Savings for Investment

Stock exchange or bourse is a mutual organization which provides facilities for stock brokers and traders, in trading company stocks and other securities, and for the issue of redemption of securities and other financial tools and capital events like the payment of income and dividends.

• Government & Corporate Bonds Investment
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The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there.

Usually there is a central location at least for record keeping, but trade is less linked to such a physical place. Electronic networks run modern markets are, providing them great speed and cost of transactions.

Stock exchange is often called the most important element of a stock market. The Demand and Supply in the stock markets is attracted by number of factors that affect the price of stocks.

Mobilizing savings for investment:
When people draw their savings and invest in shares, it leads to a more balanced allotment of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized to promote business activity that benefits several economic sectors like agriculture, commerce and industry, resulting in a stronger economic growth.

History of stock exchanges:
In 12th century France, the courratiers de change were concerned with managing the debts of agricultural communities on behalf of the banks and these men also traded in debts. These men were the first brokers. In the middle of the 13th century, Venetian bankers traded in government securities. In 1351, the Venetian Government outlawed spreading rumors about lowering the price of government funds. Because of this rumor people in Pisa, Verona, Genoa and Florence also started trading in government securities which was possible because there were independent city states ruled by a council of powerful citizens during the 14th century.

Raising capital for businesses:
The Stock Exchange helps current and newly-formed companies raise capital for building and expanding their business through selling shares to the investing public.

Creating investment opportunities for small investors:
The Stock Exchange provides opportunity for small investors like the big investors to own shares of the same or different companies.

Government capital-raising for development projects:
Governments at various levels may decide to borrow money for financing infrastructure projects like sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds are raised through the Stock Exchange where public buy them, thus loaning money to the government. The issuance of such municipal bonds can prevent the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

Listing requirements:
Listing requirements are the set of conditions forced by any given stock exchange upon companies that want to be listed on that exchange.

Requirements by stock exchange:
For companies to have their stock and shares listed at the stock exchange have to meet certain requirements of the exchange. But requirements vary in different exchanges.

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Win / Loss Ratio in CFD Trading

Among the questions often asked by clients when selecting an adviser or a system for CFD trading is what percentage of recommendations they can expect to be winners, and how much should they expect to make each month, year or whatever. These form part of a natural psychological comfort zone, but may be part of the reason why so many people fail as traders.

The Complete Guide to Online Stock Market Investing by Alexander Davidson Provides all the information and techniques needed to make money as an online stock market investor. The strategies revealed are tried and tested. In 20 easy modules, readers will discover the secrets of buying bargain stocks and trading. Drawing on the author's most recent experience in the City (London's financial district), this latest edition of the classic guide shows how to: get the most from the broker, select value and growth stocks, read the charts, choose promising investment funds, trade derivatives for fast profit, deal foreign exchange, and manage your money and win.

In any area of speculation, whether it is stockmarket investment, spreadbetting, forex trading or CFDs, if the underlying system has a small edge, it is only the first part of potential success. The key to achieving constant returns lies with a correct approach to the win/loss ratio and not in expecting any particular level of gains, which can distort the underlying methodology. CFD traders have the ability to go long and short at will, and online trading makes it easy to adjust stops and targets at any time.

An example of a good win/loss ratio that fails
Consider this example: a CFD trader selects a system where there is a supposedly proven record of seven out of each ten trades proving to be winners. The idea might be that each trade has a target return of 3%, and if it is achieved the position is closed. If the trade however shows a loss of 3%, the expectation is that it should recover and the position is doubled up, with the hope of returning to parity or even making a 6% gain. Now if market or share movements were a random sequence, it would not make any difference where one entered or exited. The overall returns would over time be neither a gain nor a loss, but costs and the spread on trading would result in a virtual guaranteed loss in due course (the casino approach).

Having a slight edge is not enough
If this system had an edge though, the expectation might be that the 3% target would possibly be hit six out of ten times, thus making it a virtual winning approach. But the problem lies in the fact that although markets and shares do have short term periods when there appears to be random action, they can both trade a range and trend strongly at other times – this is what is known as regular irregularity, which might seem a paradox, but happens all the time in financial markets.  Shares often move very quickly in one direction, and this trend can continue for far longer than expected, which creates two problems.

First, taking a 3% profit on a trade may appear to be very satisfactory, but it can often be seen in hindsight that the profit was taken too early, so despite achieving a winning trade there is an element of regret that more was not taken. Second, if the position is showing a loss, then the trade should in the real world be deemed to be incorrect and closed out. But in using such a system as this, by doubling up or averaging the position on losses, all that is achieved is an increase in risk – the trader might be lucky in some situations, but one or two trades out of the ten may cause severe problems. There is also the emotional capital that is tied up in losing trades.

This type of system typically might produce say six 3% winners, two evens (where one position was doubled up and returned to parity) and two 10% losers. Here the overall loss would be 2%, despite the good win/loss ratio, and this is clearly a dangerous way to play the markets, but many traders operate exactly in that way.

Improving the risk/reward
The first point is to set a stop loss on each trade and stick to it. Doubling up simply doubles the risk – that is fine if there is another system signal that reinforces the first trade, but generally that is not the case. The problem that then occurs is that if the stop and targets are quite close in percentage terms, the bouts of short term randomness mean that it can almost be like coin tossing, which with costs is a futile approach.

The key is therefore to ensure the gains are much greater than the losses, so that even if one only achieves four wins out of ten, there may be two big winners in there. If a trader decides that a 3% average loss is acceptable, then what average gain should be sought? This is the $64 question, and the key is to let profits runs as much as possible within a clearly defined trend. The following rules are part of the methodology used at Blue Index for the longs and shorts CFD portfolio, and the long term results have so far proved more than satisfactory.

Some simple rules for a consistent winning approach

• If searching for stock trades, try to choose high volatility or beta shares – these have a higher chance of being in a trend rather than trading a range or exhibiting random action.
• The expected initial target should always be at least twice the stop loss. If the average stop loss set is 3%, the CFD trader should look for 6%-plus gains on each trade as a starting point.
• Try to set individual stops and limits with reference to the underlying action. If a share has moved 10% one day, it is likely to exhibit an intra-day range of much more than 3%, so the stop and target should be widened accordingly. Also support and resistance levels are very useful reference points for setting price targets.
• If the trade hits the initial target, either close the position if support or resistance around that area is seen to be valid, or move the stop up to protect profits and let the position run.
  5. If there is a sudden reversal in share price trend, close the position, whether it is winning or losing.  The swings and roundabouts of trading usually mean that these unexpected trend changes even themselves out.
• Make sure you are never exposed too much in one direction. If for instance the market falls heavily from the open, then it doesn’t matter, as even if there are more longs and shorts in your list of open positions, the huge gains on the shorts should outweigh the stops hit on the longs.

Target returns
As for target returns, many traders have unrealistic expectations. A system that can offer huge returns inherently has to have a higher risk, but bear in mind this simple fact. Warren Buffett has achieved just over 20% per annum returns on his investment fund, and he did not need to use leverage to become the world’s second wealthiest man.

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Types of Investing Risks

Investing in stocks is a risky business. There are some risks you have some control over and others that you can only guard against. Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.

However, other risks are inherent to investing you have no control over. Most of these risks affect the market or the economy and require investors to adjust portfolios or ride out the storm.

Here are four major types of risks that investors face and some strategies, where appropriate for dealing with the problems caused by these market and economic shifts.

High-Risk, High-Return Investing by Lawrence W. Tuller Shows how to make unconventional, offbeat but always calculated speculative investments. Contains sound financial planning and prudent investment management guidance. Explores emerging, undervalued, third-world stock markets, debt/equity swaps and reverse LBOs. Securitized assets, troubled and start-up companies, foreclosed properties and junk bonds are also included.

Economic Risks: One of the most obvious risks of investing is that the economy can go bad. Following the market bust in 2000 and the terrorists' attacks in 2001, the economy settled into a sour spell. A combination of factors saw the market indexes lose significant percentages.

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Winning Stock Pick: Remember CKXE .10 to $30.00 30,000% Gain RRGI next? It has taken years to return to levels close to pre-9/11 marks. For young investors, the best strategy is often to just hunker down and ride out these downturns. If you can increase your position in good solid companies, these troughs are often good times to do so. Foreign stocks can be a bright spot when the domestic market is in the dumps if you do your homework. Thanks to globalization, some U.S. companies earn a majority of their profits overseas.

Least Risk Investing by Michael L. Gay; MBA; CFP (R) Investing is about probabilities and statistics and meeting your financial goals for the one life you have to live! Least Risk Investing will show you how to avoid the many investment risks that have negative expected payoffs and how to expose yourself to only those risks that have positive expected payoffs, and then, only to the extent that taking those risks buys you something of value, like achieving your most important lifestyle goals. In investment management there IS a right answer. There IS a right way to invest. Most people who will take the time to learn will significantly increase the probability of achieving their financial and lifestyle goals while decreasing the level of risk in their portfolio.

Older investors are in a tighter bind. If you are in or near retirement, a major downturn in stocks can be devastating if you haven't shifted significant assets to bonds or fixed income securities.

Inflation Inflation is the tax on everyone. It destroys value and creates recessions. Although we believe inflation is under our control, the cure of higher interest rates may at some point be as bad as the problem. Investors historically have retreated to "hard assets" such as real estate and precious metals, especially gold, in times of inflation.
Inflation hurts investors on fixed incomes the most, since it erodes the value of their income stream.

Stocks are the best protection against inflation since companies have the ability to adjust prices to the rate of inflation. It is not a perfect solution, but that is why even retired investors should maintain some of their assets in stocks.

Market Value Risk: Market value risk refers to what happens when the market turns against or ignores your investment. This happens when the market goes off chasing the "next hot thing" and leaves many good, but unexciting companies behind.

Some investors find this a good thing and view it as an opportunity to load up on great stocks at a time when the market isn't bidding up the price.

On the other hand, it doesn't advance your cause to watch your investment flat-line month after month while other parts of the market are going up.

The lesson is don't get caught with all you investments in one sector of the economy. By spreading your investments across several sectors, you have a better chance of participating in growth of some of your stocks at any one time.
Too Conservative There is nothing wrong with being a conservative or careful investor. However, if you never take any risk it may be difficult to reach your financial goals. You may have to finance 15 to 20 years of retirement with your nest egg. Keeping it all in savings instruments may not get the job done.

Conclusion I believe if you learn about the risks of investing and do your homework on individual investments, you can make decisions that will help you meet your financial goals and still let you sleep at night.

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What are Pips on Basic Forex Trading

If you are a forex trader, everything is usually about pips. For example, you might say, "I am up 35 pips for the day," or, "I made 127 pips on my last trade."

Although this sounds like a lot of fun, it would probably be helpful to explain what a pip actually is.

Forex Conquered: High Probability Systems and Strategies for Active Traders by John L. Person Written with the serious trader in mind, Forex Conquered: Examines what it takes to develop a trading system, how to evaluate it from a hypothetical standpoint, and apply it in real-world forex trading situations Covers the fundamentals of candlestick charting and explains how to utilize them Highlights the benefits that leading price indicators like Fibonacci price corrections, extensions, and projections analysis have to offer Introduces Elliott wave theory and illustrates how to apply this method in the forex market Outlines three effective trading systems based on pivot points—the stochastics system, the MACD histogram system, and the pivot point moving average system—that can be immediately implemented in your forex trading endeavors Explores essential trade and risk management issues

"Pip" stands for "percentage in point." Sometimes, people also refer to pips as "points." Basically, a pip is the smallest price unit for a currency. It is the last decimal point in every exchange rate or currency pair.

For most currencies, this means a pip is 0.0001. Therefore, if you bought USD/CHF 1.2475 and sold at 1.2489, you made 14 pips.

However, there are exceptions. One is USD/JPY. This currency pair only has two decimal places so that a pip is equal to 0.01.

Pips are very important because they are the basis by which a profit or loss is calculated.

What is a Pip Value?
Even when you utilize different currency pairs and deal with fluctuating prices, the pip usually remains the same. If the USD is the base currency, you divide the pip (which is usually 0.0001) by the exchange rate. If the USD is the quote currency, the pip value is always just one pip, such as 0.0001.

Therefore, if the exchange rate for USD.CHF is 1.2489, it goes like so:

0.0001 / 1.2489 = 0.0000800704

That probably seems like a small number, but remember that with forex trading, you can leverage small sums of money to move large amounts of currency. Therefore, it is entirely possible to make a profit off of such a small number.

For example, if your broker lets you trade with leverage of 100:1, you only need to put up $1000 to buy a standard lot of $100,000. You can see that trading in larger lots boosts the pip value so that your profit or loss is also affected, like so:

If you trade on $1000 in currency, your pip value is calculated thusly:

0.0000800704 X 1000 = $0.08 per pip.

This means that you have a profit of $112.14; not bad.

With forex trading, you don't invest in a single company or group of companies as you do with stocks or mutual funds, for example. Instead, you're investing in a particular national economy. You are pinning hopes on one nation's economic health versus that of another.

Therefore, fundamental analysis is very important. When trading currencies you need to know about the countries economic situation.

Technorati Tags: Forex Trading, Currencies Trading

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Investing in Socially & Environmentally Responsible Stocks

Investing with your conscience rather than against it may be a good idea. How can you fully enjoy profits from a company that pollutes, subjects animals to painful testing or lure teens to smoke if you're morally opposed to its practices? On the other hand, charity has a time and a place - and this isn't it. You invest money to earn a decent return, otherwise you might as well keep it in your mattress. So how do you strike a sensible balance between sound investment and doing your part in making the world a better place?

Start with a gut check. Are there any industries that are out right off the bat? Tobacco? Fast food? Guns? Write them down and try to identify specific companies to avoid. Then run through your checklist before executing any trades. This will prevent temporary greed and general forgetfulness to cause buyers remorse later on.

Next, use the Internet to do some basic homework. Many companies have multiple branches, some of which are perfectly acceptable to you while others may be objectionable. For example, Altria, formerly Philip Morris, controls half the US tobacco market but is also deeply involved in the food industry through its subsidiaries. In other words, you'll need to take a good look under the hood to identify the members of your 'black list'.

With the bad guys out of the way, it's time to focus on the good guys. Which companies are really living up to your standards as being 'socially responsible'? Remember, glitzy ads mean very little, so it's time to hit the Internet again. Fortunately, there are tons of helpful sites out there that help make your job a lot easier. Do a search for 'socially responsible stocks' in Google and you'll get dozens of reputable sources served on a platter.

But here's the caveat; just because a company strives to be a good citizen doesn't automatically mean it's a good investment. While some are as good for your wallet as they are for the environment, others stink to high heavens. What you're looking for is a company run by experienced managers, producing good products, with a solid balance sheet and with good growth potential. In other words, use the same criteria you would use for any other stock.

If individual stock picking is not your thing, you may want to go with a mutual fund. With these, all you do is cut a check and let the fund manager take it from there. But make sure to read the prospectus carefully so that you're on the same page as the fund manager when it comes to deciding what's socially responsible and what isn't. Some examples of such fund companies are Domini, PAX World, Citizens Trust and Green Century.

Last but not least, don't forget to keep an eye on the 'regular' stock market. Companies change course due to necessity, new management philosophies, pressure from consumer groups and whatnot. That can make a previously so-so company right on target for your socially responsible portfolio even though the watchdogs have not yet caught wind of it. If you're lucky, you'll catch a good thing in the early stages before the fruits of the changes have come into effect from both a financial and environmental perspective. But remember: Dealing with virtuous stock doesn't prevent you from losing your shirt if you make the wrong call. Don't invest the rent money.

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Shorting Stock: What are the Basics of & How to do it?

You need a securities brokerage account before you can trade stocks, bonds, options or other financial instruments.

How to Make Money Selling Stocks Short (Wiley Trading) by William J. O'Neil, Gil Morales The mechanics of short selling are relatively simple, yet virtually no one, including most professionals, knows how to sell short correctly. In How to Make Money Selling Stocks Short, William J. O'Neil offers you the information needed to pursue an effective short selling strategy, and shows you with detailed, annotated charts on how to make the moves that will ultimately take you in the right direction.

There are many reputable discount brokers that will establish an on-line account for you. You can open the account without depositing any funds, but, obviously, you must fund the account before you can trade securities. Normally, a new account must be funded with a minimum of about $1000. Some may let you start with a minimum of $500.

If you don’t want to trade on-line, your discount brokerage account is usually also accessible via touch-tone phone, either via automated menu or dealing directly with an account representative. Be aware that on-line commissions are generally the cheapest, with phone commissions being a little higher. You’ll pay the highest commissions if you deal directly with a human account representative.

Normally, if you are inexperienced in trading securities, you broker will restrict the type of securities you can trade in your new account. Novice investors are usually only allowed to buy shares of stock, and later sell shares they bought previously.

Options for the Stock Investor by James B. Bittman Straightforward option strategies that reduce your risk and increase your profit potential in virtually any investing or trading program, provide you with new option techniques and strategies, this comprehensive handbook explores: Risk-reduction strategies for conservative investors, including buying calls and covered writing Profit-generating strategies for aggressive traders, including vertical spreads, straddles, and strangles Flexible strategies for improving your risk/return profile, including covered straddles, covered combos and ratio spreads

After the account has been active for awhile, investors must ask their broker, in writing, for permission expand the account’s capabilities, such as trading stocks on margin or trading options. It’s not likely that many brokers will permit new investors to “short” stocks.

Short selling, or “shorting” a stock, is, simply, selling shares of stock you do not own. It’s where you, the investor, have identified a stock whose price you expect will fall. You want to profit from the price decline, so you ask your broker to permit you to sell the stock, even though you don’t own any shares of it.

If your broker has granted your permission to sell short in your account, he will either loan you the shares from his portfolio, or he will have to enter the market to see if he can find shares to borrow for you to sell short.

Most likely your short sale will be subject to a time limit, perhaps 30 or 60 days, at the end of which you will have to buy the shares back to repay the loan of the shares you sold short. Buying stock you have previously sold short is called “covering” or “short covering”.

Borrowing stock to short is similar to trading stocks on “margin”, which is when you put up part, say 50%, of the purchase price, and your broker loans you the other 50 percent. If you “short” stocks, don’t be surprised if your broker charges you interest, probably at the same rate as a “margin” trade, on the dollar value of the borrowed shares.

So, for a simple example, if you short 100 shares of XYZ Corporation at $10 per share, your account is credited $1000. Then, if the price declines, as you expect, to, say, $6 per share, you buy the 100 shares and your account is debited $600. You keep the difference, which is $400 (minus your broker’s commissions and interest).

But, if you guess wrong and the stock price goes to $14 per share, you are $400 down on this deal. Remember, you may be working under a time limit for replacing the shares you shorted. Let’s say your time’s up and you must replace the shares at $1400. You must come up with $400, in addition to the $1000 you got when you shorted the stock, to buy the stock back (“cover the short”). In this case, you have lost $400 (plus commissions and/or interest).

Even if you do not have a time limit for covering, you need to decide in advance how long you will stay short if the price goes against you (up). A general rule of successful investors is to bail out of a position if the price goes against you by 5 to 10 percent.

An alternative to selling short is to buy “put” options. “Options” are the right, but not the obligation, to buy or sell a stock at a fixed price, called the “strike” price, before the date the option expires. Buy options are “calls”, sell options are “puts”.

Options are bought and sold in “contracts”. One contract “controls” 100 shares of the associated stock.

Put and call options are not available on all stocks. As a rule, a stock must have a substantial daily trading volume, perhaps 500,000 shares or more, before an options market will develop for it.

You can go two ways with options. If the price of the associated stock moves they way you had hoped, you can instruct your broker to “exercise” the put - sell the stock at the strike price and buy it back at its current price, which is lower than the strike price. If you exercise your put option, you profit on the difference between the strike price of the stock and the price you buy it back at, but you eat what you paid for the put.

Or, you can simply trade options as if you were trading stocks. If you buy a put expecting the price of the associated stock to fall, and it does, then the put will increase in value. You can sell the put at a profit under 2 conditions: It has not expired, and there is a buyer willing to buy it.

Be advised that broker commissions for options are higher than for stocks.

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Guide to Buying / Selling Stock

When to sell a stock is very difficult to know exactly when to sell. There has not been a lot of research on the subject, and when asking advice from a broker you usually get an answer like, “ Let’s watch for a few more days”, or “ It’s not doing well right now but let’s watch it a little bit more.” You never can get a straight answer. There are a few things to keep in mind; you must watch your stock. It is your money and no one is going to look after it better than you do. If the stock you have bought has gone up, there are two ways you can go, sell and take the profit or let it ride.

When it comes to determining how well an individual stock is going to be, look at the trend of the stock. The most important thing to look for is failure. A stock that has tried several times to make come back after a high sell, but sells lower each time is considered a failure. The stock must sell below the price level that it sold for the previous failure. This defines the stock’s trend as down not up.

When you have a failure, do not let the stock sit too long. Sell and sell fast, do not put it aside in hopes that it will come back up if you hold on to it long enough. This is a warning sign that you must heed to if you hope to recuperate any of your investment. The game of stocks entitles you to where you do not have to be concerned about what and why the stock is not doing well. When you have made that decision to sell you have made an objective decision, now stick to it and sell.

The best time to decide to sell is when the stock market has closed for the day, this way you will not let every up and down affect your decision emotionally. When you make the decision to sell use what is called a protective stop order. To issue a protective stop order all you have to do is notify your broker, tell him that when the stock drops below a certain point to automatically sell the stock.

Stock orders can and are used every day very effectively. You can use the system of stock orders when stock rises also. A stock order may be issued each time the price advances, all you have to do is cancel the old stop order and enter a new one. It is best to keep in contact with your broker if you decide to use stock orders. There is an important rule or stock secret to remember, when you decide to issue stop order either to sell or to buy, remember to set the stop order ten percent either below or above the current stock market price.

When the decision to sell is made keep in touch with your broker to make sure all transactions are handled professionally.

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What are Key Investment Ratios?

One aspect of smart investing is being able to determine whether or not a company is a healthy company in general and not just this past year. You also want to know if a stock is really a bargain or not. Stock price and dividends are good to know, but not the only pieces of information you need to make sound, long-term investment decisions. A good year of either doesn’t mean there will be more.

Magic Numbers: The 33 Key Ratios That Every Investor Should Know by Peter Temple Provides a straightforward primer to calculating and interpreting 33 key investment ratios. The book is organized into five sections that explain market-based ratios (e.g., market capitalization, P/E ratios), income statement ratios (margins, earnings per share), balance sheet rations (price/cash ratio, burn rate), cash flow ratios, and risk and volatility ratios. Each chapter clearly shows the inputs necessary to calculate a particular ratio and explains its relevance in evaluating a company's performance.

When making a decision about where to put their money, savvy investors use ratio analysis. There are three kinds of ratio analysis:

• Profitability Ratios: measure how much profit a company generates
• Gearing Ratios: assess a company’s leverage
• Liquidity Ratios: measure the ability of a company to meet its debts
• Investment Ratios: measure the performance of the overall business.

This article focuses on investment ratios. There are countless ratios you can know about, but those referred to as the key investment ratios are the ones that will help the basic investor get the information they need to make a sound decision. The good thing is that most of the information you need to do these ratio’s calculations can be found in the financial statement, annual report or balance sheet of the company whose stock you’re investigating.

P/E Ratio is the ratio most people are familiar with and helps one determine whether or not a stock is too expensive or a really good deal by looking at the earnings relative to stock price. You divide the current stock price by the last four quarter’s earnings. If your company’s stock is trading at $20 a share with a .50cent EPS (earnings per share), your P/E Ratio is 40. A low P/E ratio means the company is undervalued and the stock is probably a good deal. If the P/E ratio is too high, the company is overvalued and you probably don’t want to pay more for a stock than its worth.

Return On Equity is a simple calculation that allows an investor to look into the profitability, asset management and financial leverage of a company. A company’s ability to maintain good levels within these groups signify a good investment for many. For ROE, you divide a year’s worth of earnings by the average shareholder’s equity (found on the company balance sheet) for that same year.

Earnings per share (EPS) is the most basic ratio and probably the simplest. You divide the number of average shares outstanding by net income minus the dividends on preferred stock. So, if a company’s post-tax profits are $1.2 million and there are 20 million shares issued, the EPS is .06. You’re looking for smooth, consistent growth here.

Dividend Payout Ratio calculates the percentage of earnings paid to shareholders by dividing earnings per share by yearly dividends per share or dividing net income by dividends. More mature companies have a higher payout ratio and if you’re looking to use dividend payments as income, this is important.

P/E Growth Ratio is used to determine a stock’s value while considering earnings growth. You divide annual EPS growth by the P/E ratio. A lot of managers prefer this to the P/E ratio because of the growth component.

Net Asset Value (NAV) is a ratio for mutual funds and equals the total value of the fund’s portfolio less liabilities. You’ll get this dollar amount by dividing the current market value of a fund’s net assets by the number of shares outstanding. So, if your fund has net assets of $100 million and there are one million shares in the fund, the NAV is $100.

Return On Investment (ROI) is what a company does with assets to generate additional value for shareholders. It is a percentage ratio calculated as net profit divided by net worth. It is also defined as a measure of a corporation’s profitability. If a $100 stock returns $15 a year, your ROI is 15%. Obviously, you want this percentage to be as high as possible.

Profit Margin is a calculation that fits into investment ratios as a key indicator of profitability. Usually displayed as a percentage, profit margin is calculated as net earnings after taxes divided by revenues and is useful when you want to compare stocks within a particular industry to those in similar industries. As you’ve guessed, a higher margin indicates a more profitable company.

Turnover Ratio is a measure of the number of times a company's inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly.

Leverage Ratio (also referred to as Debt To Equity Ratio) is found by dividing the company’s total amount of long-term debt (debts with interest rates that have a maturity longer than one year) by the total amount of equity. A company is likely able to make its interest payments on debt regardless of a moderate sales decline if their leverage ratio is under 50 percent. A company with a higher leverage ratio can offer greater returns to shareholders but can also be riskier.

Dividend Yield is a percentage ratio of a company’s annual cash dividends divided by its current stock price. To get your annual cash dividend, you multiply the next expected quarterly dividend by four. If a $100 stock pays $2.50 quarterly, then your annual cash dividend is $10. Divide this by $100 and you get your dividend yield: 10%.

Market Capitalization, the current market value of a company’s outstanding shares, can be found by multiplying the number of outstanding shares by the current price of each share. A company with 1 million shares outstanding, trading at $75 per share, has a market cap of $75 million.

Current Ratio can be calculated by dividing current assets by current liabilities. You would use this ratio to see if the company can pay their current debts without going against future earnings. You’ll want to see a ratio of 1 or higher here.

Price To Book Value Ratio is calculated by dividing the current price of a stock by the book value. Book value, an accounting term, is the net asset value of a company. Whether the ratio is high or low could be a result of a company being old or a new start up with stock that hasn’t yet depreciated. It’s not a tell-all ratio, but does help in your overall research.

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Reading & Understanding Stock Quotes

In the Internet age, with stock quotes easily available on-line, reading stock in the newspaper is becoming less necessary. There are times, however, when you will find it preferable or necessary to read printed stock charts. The format may vary slightly from newspaper to newspaper, but all will generally be the same. The Wall Street Journal’s (WSJ) stock charts are a good example of what you will find.

Fundamentals of the Stock Market by B. O'Neill Wyss Practical, hands-on blueprint to stocks and mutual funds provides a thorough overview of today’s stock market. From understanding how trends and policies affect markets and the basics of placing a trade to advanced issues including technical analysis, short selling, Modern Portfolio Theory, and more, this unique and useful workbook explains the stock market in clear, concise language.

The stock charts are broken down by stock exchange – NYSE, Nasdaq, etc. Each exchange will be listed separately, with the stock exchange’s listings categorized alphabetically. Several columns are associated with each stock. Reading from left to right, the columns are:

· 52 week high – The stock’s highest closing price in the last 52 weeks.

· 52 week low – The stock’s lowest closing price in the last 52 weeks.

· Stock – An abbreviated version of the company’s name.

· Sym – This is the symbol under which the stock is traded. The WSJ lists both an abbreviated version of the company name and the stock symbol. Many newspapers list only one or the other.

· DIV – The annual dividend the company has historically paid.

· YLD % - The percent return, in dividends and/or other company pay outs, a stockholder can expect to receive from the company. Based on the previous day’s closing price.

· PE – The Price to Earnings ratio (P/E).

· VOL 100s – Trading volume for the previous day, in hundreds of shares.

· HI – The highest per-share trade the previous day.

· LO – The lowest per-share trade the previous day.

· CLOSE – The previous day’s closing price.

· NET CHANGE – The change in share value from the close of trading two days ago to yesterday’s close.

The Stock Market Course by George A. Fontanills, Tom Gentile Avoid expensive trading blunders with this hands-on workbook designed to test readers' investment savvy. Developed by a popular stock trading instructor, The Stock Market Course Workbook quizzes readers on their knowledge of the concepts presented in Fontanills's The Stock Market Course. Because mistakes are costly in the stock market, this accessible study guide provides readers with the opportunity to trade "fake money" before risking their real assets in the market. The invaluable lessons learned in this workbook could save readers thousands of dollars in investment mistakes.

Most newspapers will also publish the same information based on the week’s trading. These stock charts often appear on Saturday, Sunday, or Monday.

Many times, there will be a small footnote near the stock’s name. You can find interpretations somewhere near the bottom of one of the beginning pages of the stock charts. Common notations are ex-dividend dates, new high, and new low. Rather unique to the WSJ is a shamrock notation, which means you can order that stock’s annual and quarterly reports from the WSJ Reports Service.

Without argument, Internet stock quotes are more up-to-the-minute. To some of us, however, nothing beats the relaxation of sitting on the sofa with the morning paper.

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Value Investing

The term "value investing" is usually mentioned opposite another investment strategy, "growth investing." Really understanding the difference between the two strategies requires a little bit of investment theory.

The price of a stock (just like the price of any other financial instrument) is supposed to equal the present value of its future cash flows. "Present value" refers to the concept that a dollar today is worth more than a dollar next year. "Future cash flows" refers to the amount of cash your business generates - after interest expense, after taxes, and after capital expenditures, how much cash is actually available to shareholders?

Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema Explores the history and principles of value investing, and sets up guidelines for its successful application. Discusses where to look for underpriced securities, how to determine the intrinsic value of a stock, and alternative methods for constructing a portfolio that control risk without restricting investment return.

Value investing and growth investing differ in the pattern of expected future cash flows of the company. Value investing involves investing in established companies that are projected to have basically stable or slightly growing cash flows. Growth investing involves buying stock in companies that are projected to grow much faster than the market as a whole - and paying a premium for those companies. The projected cash flows of growth companies are much bigger, but much further away, and hence usually riskier.

Some investors prefer the simplification that "value investing" means investing in companies with low P/E's (price-to-earnings ratios, a proxy for the amount of cash flow a company is producing) - usually under 10.0x. "Growth investing" means investing in higher P/E companies. Underlying the high P/E is the concept that an investor is paying upfront for expected growth.

It is impossible to mention "value investing" without also mentioning Warren Buffett. Buffett doesn't consider himself a value investor, but the things he watches for in investing: a solid business model, competent management, and an excellent price - are all worth watching for in your own forays into value investing.

The first thing Buffett looks for is a tried and true business model. That means a company must have established its line of business, competed successfully within its industry, and produced reliable profits for its investors year over year. Whether the business is airplane manufacturing or clothing retailing, a strong history of profits is the clearest way to demonstrate that a company's way of doing business will withstand the challenges of time. Most value investors like to target companies that have had consistent histories of profit for the past three to ten years. Looking exclusively for historically profitable businesses protects the value investor from the risks that new and unprofitable businesses represent.

The next thing to look for in a value investment is a competent, ethical management team. Ordinary investors may not have the opportunity to meet management face-to-face, but value investors can look for other ways to gain insight into a management's priorities, such as by reading the Company's "letter to shareholders" in its annual report and listening to company earnings conference calls. Value investors seek out managements that are focused on shareholder interests and capable of delivering excellent results.

If you have a stable, profitable business and a competent management team, then you're ready to move to the third critical pillar of value investing, "an excellent price." As mentioned above, value investments are usually considered those with P/E's below 10x. Ask yourself this: would you be willing to spend $10 today to earn $1 each year, every year into eternity? With a stable business, this is exactly the concept that a P/E of 10x symbolizes.

Value investing doesn't appeal to everyone. Rather than talking with friends about the latest hot medical device patent or IPO, value investors must invest time and effort looking for the best companies in traditionally stodgier industries. Rather than gleefully anticipating 30%+ returns, value investors must remain focused on the long-term cash-generating power of their portfolios. However, for investors looking to build long-term wealth in the stock market, a value investing approach will go a long way.

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Advantages of Investing your Money Globally

Investors in the United States are blessed with a number of advantages. Liquid equity markets, a large number of listed companies and comprehensive disclosure combine to make the US equity markets exceptionally attractive. However, that attractiveness inevitably leads to lower returns for investors because of the overall efficiency of the market.

International Investments by Bruno H. Solnik, Dennis W. McLeavey Provides an authoritative and classic treatment in the field of international investments, with a clear exposition of theory and recent empirical research.

In contrast, international markets offer greater opportunities simply because they are smaller and not as widely pursued. For an investor willing to dig a little deeper into an investment, international investments can be a goldmine. But investing abroad can still offer substantial benefits for the investor who prefers leaving the heavy analytical lifting to a mutual fund.

The first and most obvious advantage of international investing is diversification. Other economies, be they in Western Europe, Russia, or Southeast Asia, will have a different set of economic circumstances than the United States at any given point in time. If the United States falls into a recession, Ukranian or Chinese equities may nevertheless be roaring along. A broadly invested portfolio will not be as adversely affected by negative movements in any one of its component companies or countries.

An internationally invested portfolio also allows an investor to capitalize on the higher growth rates available in developing economies. Many developing economies in Europe and Asia are currently growing much faster than the United States as they "catch up" to more developed countries. Companies operating in these countries have a built-in growth advantage. They have the "wind at their backs" - a growing economy will increase most business' revenues without any increase market share.

International companies are often significantly cheaper than US companies. This means that the same dollar of capital invested will often return substantially more in operating earnings and earnings per share than a comparable company in a comparable industry in the US. The price discount reflects the risks of investing abroad, but there is often also a discount for illiquid or hard-to-understand investments. This discount compensates investors for the increased research and complexity involved in international investments.

Finally, international investments can offer quite a few psychological advantages. Investing abroad means putting capital where it is most needed. Particularly for developing countries, foreign investment allows the kind of accelerated growth that lifts people and countries out of poverty. Furthermore, ownership of international investments will encourage you to keep up on current events in that country and make you into a more informed global citizen.

The exact nature of the company and country you are investing in will affect the balance of these advantages. Investing in developed western European nations is a good diversification strategy, for example, but you may not enjoy the higher-than-usual growth rates of investing in a developing country. Likewise, less developed countries frequently offer high discounts in relation to their US competitors, but the increased volatility of these investments will make them less useful as a diversification strategy.

The potentially high rewards of investing internationally are balanced by risks. These risks vary by country, but there are a few common threads. International companies frequently offer less disclosure. A company's website, investor information and news may not be available in English, which makes it difficult to keep tabs on portfolio companies. Investors also face currency risk - for example, if the dollar is appreciating strongly it may be difficult for your overseas investments to keep up. Finally, legal issues and country issues are always a concern in developing countries, as these countries may enact regulatory, tax or ownership laws that adversely impact investors.

However, there is indisputably money to be made abroad, and smart money will follow the opportunity. After weighing advantages and disadvantages, informed investors can frequently buy a very profitable stake in the global economy.

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Government & Corporate Bonds Investment

Most people know about the basics of investing in the stock market but many people are puzzled as to what bonds are. In one word a bond is a loan. The loans can be form the federal government, a federal agency, municipality, or corporation. When you purchase bonds you are lending your money to whomever you buy the bonds from. In return for lending them your money you are paid a fixed rate of interest over a set period of time. When the bond matures the investor’s money is usually returned with the earned interest included. Bonds are like stocks because they are both traded. Therefore you can buy the bonds after they are originally issued while at the same time you can sell bonds before they mature. Bond prices are subject to volatility in relation to market conditions.

The Bond Book: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, & More by Annette Thau Provides investors with the information and tools they need to make bonds a comforting, important, and profitable component of their portfolios. Thoroughly revised, updated, and expanded from its bestselling first edition, this all-in-one sourcebook includes: A new section on using the Internet to research, buy, and sell bonds A new chapter devoted to increasingly popular foreign bonds Detailed information on the inflation-linked Treasury bonds Explanation of the new categories of bond funds Tips on how to evaluate and buy bond funds

When a person is issued a bond they are basically promised to get their money back. Bondholders are paid before anyone else, even stockholders and creditors if the company runs into hard times or goes bankrupt. Bonds give you a stream of income based on their rate of return. Bonds are usually much less volatile then stocks are. Bonds also can provide a tax break because municipal and government bonds are sometimes exempt from state and federal taxes.

The main disadvantage to bonds is that they generally have lower returns than stocks and mutual funds. Bonds are like stocks because their prices are sensitive to interest rates as well. Bonds also carry with them some heavy terminology, which can be confusing and hard to understand.

Type of Bonds:

• Government Bonds
  The U.S. Department of Treasury and other federal agencies issue treasuries and federal agency bonds. Treasuries are basically risk free because the U.S. government backs them. They are issued to help finance all of the costs involved in operating the government. Municipal Bonds – State and local governments to help pay for schools, streets, highways, hospitals, bridges, airports, and other public works issue municipal bonds. You usually don’t have to pay federal taxes on the interest earned from municipal bonds.
• Corporate Bonds
  Corporate bonds are issued by businesses to help pay for business expenses. There are a ton of different corporate bonds available all with their own interest rates, maturities, and credit ratings. Corporate bonds are generally higher risk bonds in comparison to municipal and government bonds. They also have a higher rate of return than municipal and government bonds. However you do have to pay taxes on the interest earned from corporate bonds. Municipal bonds are issued by more than 50,000 state and local governments and their agencies to fund projects such as schools, streets, highways, hospitals, bridges, and airports.

Bonds and Bond Derivatives by Miles Livingston Provides an introduction to bond markets and bond derivatives for students as well as for executives in commercial businesses and financial institutions. While many topics about debt instruments involve mathematics, this text presents the essential elements in an intuitive manner. Containing material that is accessible and engaging to students and practitioners alike, the book is ideally suited for debt markets courses, and provides a good fit with any finance curriculum....

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What is Asset Protection?

Asset protection is the process by which one takes steps to prevent the risk of their personal and/or professional assets being accessed and seized by creditors and/or claimants. Assets include bank accounts, investments, real estate and more. The process is used everyone from the working class to billionaires. Naturally, the more assets one has, the more concerned they are with protecting their assets.

Asset Protection: Concepts & Strategies for Protecting Your Wealth by Jay Adkisson, Chris Riser Asset Protection covers everything readers want to know about, such as: Establishing an effective asset protection program Today’s most popular, established strategies Newer strategies that are still being resolved by the courts

Asset protection is a fundamental step taken by professionals and entrepreneurs. They are at high risk of being professionally sued, thus their professional as well as personal assets are at risk of being seized in a judgment.

How does one protect their assets? There are several avenues one may use for asset protection. The “poor man’s” asset protection involves transferring personal accounts and assets into a trusted family member or friend’s name. This is usually done for short-term assets that will be depleted in a short period of time. An example is a man who owes child support receives several thousand dollars as a lawsuit settlement. He signs the check over to his brother, and it is deposited in the brother’s account. He then spends the money from his brother’s account, and his ex wife is unable to access that money.

More sophisticated forms of asset protection are available in two forms. They are domestic and offshore asset protection. Domestic asset protection for business owners includes setting up corporations. Corporations separate your business liabilities from your personal assets. If one is sued their personal property is protected, only their business assets may be seized.

There are several types of corporations, but the most protective is a Nevada corporation. The most important thing to know about being sued is that the plaintiff’s lawyer will do an asset search on you. They will first turn to tax records to see what you own and pay taxes on.

Many business owners set up a Nevada corporation because Nevada is a tax-free state. There is no personal, franchise, corporate, stock, estate, gift, inventory or inheritance tax. Thus Nevada does not report any income (asset) to the Internal Revenue Service. Also Nevada protects business owners from personal liability against acts committed by their corporation.

A more sophisticated corporation is an offshore corporation. By setting up an offshore corporation, you form an entity to hold your assets, but only you know who the beneficial owner is. When doing business offshore a business representative is selected, but you retain control and all of the profits. Thus your business dealings are done anonymously. Lawyers and asset searchers will be unable to locate your assets. And if your assets are located they are still protected. United State’s judgments are not recognized in offshore courts.

Offshore bank accounts and lock boxes are also popular because US asset searchers and lawyers can’t trace them. The wealthy have employed offshore account usage for decades. We are all familiar with the “Swiss bank account.” This is an offshore option of storing money as well as tangible assets. Often people will invest in diamonds (or any type of gemstone) and have them held offshore, as insurance. If they fall victim to financial ruin, they can retrieve their gems, sell them and start anew.

The elderly population has turned to asset protection so that they qualify for Medicaid insurance without turning over their life savings to their state. Traditionally, one is not allowed to have more than fifteen hundred to two thousand dollars in their accounts to qualify for Medicaid. Three years or more prior to their anticipated Medicaid application initiation, they will transfer their money to a trusted family member.

As with any legal matter, it is important to consult a lawyer or professional asset protection manager. But with proper advice you can be sure that in litigation you won't literally lose your shirt!

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Important Steps to Take Every Five Years of your Life for Retirement Planning

The New Rules of Retirement: Strategies for a Secure Future by Robert C. Carlson Proven, profitable, and unique strategies for achieving a financially secure retirement In this step-by-step financial program for retirement, nationally recognized retirement expert Bob Carlson explains why people will need more money than they think during their upcoming retirement, then shows them how to use innovative and carefully researched strategies along with all of their assets to ensure financial security throughout their retirement years.

So, you are saving up for retirement? That’s great!! You’ve already taken the hardest step- it’s hard to save up money because it’s so fun to spend it! Any money that you are saving for retirement is going to really help in the long run. However, how can you make sure that you are maximizing your retirement funds?

Every five years or so, there are a number of things that you can do to make sure that you are on the right track. For example, meeting with a financial planner every few years and taking a look at your financial portfolio would be a very good idea. Looking at your investments such as your liquid savings, your 401K, your IRA, your stocks, etc. with a professional financial planner can really help you. They can give you advice about how your investments are doing, and if you should sell any of your stocks, or if you should change the mutual funds that you have been investing in. They are trained to do this kind of thing, and you are paying them. Make sure they give you adequate time and give you reasons behind their advice. Beware of any financial advisors who want you to sell everything. Some financial planners will want you to do this only so that they can get a commission on the stocks that you sell. If this occurs, get a second opinion.

Another thing to do every five years or so is to challenge yourself to save more. If you’ve been putting 6% of your income into your 401k every year, you should consider trying to move that number up significantly, if possible. You probably have will have gotten raises in that time, and the amount that you can contribute annually will also probably have gone up. Try to go up at least 1 or 2 percent, if possible, every few years. Don’t just put 6% in, and then never raise that number. Your salary increases, and therefore, so should your contributions.

On that same note, you should also check and see if any of your other investments can be contributed to more. For example, usually every year or so, you can contribute more to an IRA. If 5 years ago you were putting $2500 every year into your IRA and now you can afford to put in $3500 and the government allows this, definitely go for it! You don’t always want to put the absolute minimum in.

Most of this is probably common sense. Get financial advice, keep all documents about your finances in a safe place, keep contributing, and if possible, as your income goes up, put more money into your various investments. Even though this seems like common sense, a lot of people ignore their retirement investments because they falsely believe that they will be okay as long as they put SOMETHING into their retirement funds. This is not always true. In fact, most people do not save enough to keep their current lifestyle by any means.

• Senior Years's Financial Planning
  If you’re planning on living a long life, you might want to stop one day and think about how you will get by if you find yourself at the age of 70, 80, or even 90 with no income except social security. How will you pay all of your bills?

The main point is to keep on top of your retirement funds. Make sure that you know all of the newest amounts that you can contribute and make sure that you don’t spend too much of your income. If you can save more, squeeze out the money so that you can contribute so that you can ideally contribute the maximum. Most of the time, companies will contribute up to a certain amount of money for the amount that you put in. Don’t ignore this free money! If you can at least contribute the maximum that your company matches, by all means, do so!

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Basic Advice for the Best Returns on your Gold Investment

When looking to add to a portfolio consider investing in gold. There are four main reasons for investing in gold. It has a long-term store of value, is an asset of last resort, is highly liquid and is a good way to diversity your assets. Gold is a reliable store of value because it fulfills all of the functions of money. It is portable, divisible, indestructible, natural, easily recognizable and always accepted as a form of payment. No matter the financial climate, gold endures. While most currencies and commodities generally decline, gold withstands inflation and market fluctuations. It is a secure aspect of any investment portfolio.

Ruff's Little Book of Big Fortunes in Gold & Silver by Howard Ruff Detailed guide to a once-in-a-lifetime chance for middle-class Americans to get rich investing in one of history’s greatest bull markets. Ruff makes a usually arcane subject easy to understand, and even humorous. This bull market will dwarf even the 500% to 1700% profits his readers made in the metals in the 70s, and as usual, Ruff is out in front.

Throughout history, while paper money has come and gone, such as Confederate money, gold has remained stable. By investing in gold one doesn’t have to rely on the government or corporations for dividends. Most economic policies do not affect gold and whereas bank accounts can be frozen, gold is freely available. Gold is reliable for any planned long-term investments. It can be easily sold twenty-four hours a day, seven days a week in any number of markets around the world. When investing in gold to diversify, one can be either conservative or aggressive and still add value to the portfolio.

The price of gold is not affected by a companies profit unlike stocks and bonds. Its price depends on supply and demand, the rate of the US dollar, inflation and interest rates. But instead of being negative, the price of gold moves in the opposite direction of stocks and bonds. When the market bottoms out, gold generally increases in value, thereby stabilizing the investment portfolio.

Gold can be bought and sold anywhere in the world at anytime. Anytime is a good time to invest in gold. There are different forms that gold can take for investment purposes. The first is gold bullion. This generally comes in the shape of bars in a variety of weights and sizes. They can be as small as one troy ounce (1.09714 regular ounces) or as large as 400 troy ounces. The broker commission on gold bars is minimal and gold bars are often the most cost-efficient means. Bars marked with the “logo” of the refiner are the easiest to sell. The bars are generally 99.5% or higher pure gold, stamped .995 as well as stamped with the bars weight. Bars can be purchased from a number of places such as commercial banks, precious metal dealers and brokerage houses.

Another form of gold for the investor is gold bullion coins. These are often popular because they combine beauty with value. Whereas the coin bears a face value, that is merely symbolic. The true value is based on weight. Coins are minted in 1/20, 1/10, 1/4, 1/2 and one ounce increments. The price for coins is based on the bullion price plus 4-8%. Popular forms of coins are the American Eagle, the Canadian Maple and the South African Krugerrand among others.

Once the decision is made to invest in gold and the form has been chosen, next is the decision as to whether to have physical possession of the gold or to put it in storage. Gold can be delivered directly to the owner and secured personally or can be purchase through an intermediary and stored elsewhere for a small fee. By having a gold storage account, the investor receives a regular statement that tracks their purchases and sales as well as the value of their holdings. Usually, gold held in storage accounts is unallocated and mixed with the gold of other investors. This makes it less expensive to invest in gold. Allocated assigns specific gold bars or coins with markings to a particular investor.

For the more advanced or adventurous investor there are other, more advanced forms of investment, such as numismatic coins. The value of these coins is based on its rarity, the number originally minted, how old it is and what condition it is in. These coins are bought and sold by collectors with gold prices not having much affect on the price. These coins have a much higher value than their gold content. Also available are gold future contracts. With this form of investment the investor agrees to either make or take delivery of an agreed upon amount or quality during a specific month in the future at a specific, pre-arranged price. The price is determined by what the possible “forward carrying” cost for gold would be at that point in the future. Gold mining stock is part ownership of a corporation. To do this it is important for the investor to be familiar with the mining company and its financial status and potential future earnings.

Whatever forms the investor chooses gold is a solid, financial investment and a good way to diversify the portfolio. Gold helps to stabilize a portfolio, thereby balancing out riskier investments such as stocks and bonds.

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Why is Your Mix of Stocks & Bonds so Important?

Historically, stocks and bonds tend to move in opposite directions. In other words, when stocks take off for the stratosphere, boring old bonds get left in the dust. Why would anybody bother with a few dinky percent return when you can strike it rich in the stock market gold rush? But then, as happened when the dotcom bubble burst, people stampede to get out of stocks. And where do they put the money? Right - the stodgy but relatively reliable bonds. When one zigs, the other tend to zag.

The underlying cause for this is not only the psychology outlined above. Interest rates, as dictated by the Federal Reserve, further reinforce this phenomenon. When things are going well, the Fed wants to keep the economy from overheating. The primary way to do this is to hike the interest rates. This makes borrowed money more "expensive" which cools off the growth to a reasonable level.

Unfortunately, this is bad news for someone holding bonds. Since a bond is essentially an IOU with a set interest rate, your existing bond is suddenly less worth than a new, freshly minted one. If the IOU in your pocket you bought yesterday has a 6% interest rate and a new one today has 7%, you probably feel a bit gypped. And if you bought shares in a bond fund, which is what most of us choose to do, the value of your fund shares take a hit with each rate hike.

On the other hand, the Fed is quick to slash the rates when the stock market takes a tumble. Then you're suddenly sitting pretty with an IOU that brings in MORE than a new bond would, and for a bond fund the value of your shares go up.

With this in mind it is easy to see why bonds work as an effective hedge against stock market swings. If you keep 30% of your savings in bonds and 70% in stocks, you will do well when the stock market rallies. The 30% in bonds will not grow as fast as your stocks, but at least you have a reliable dividend income to fatten up your bottom line. However, when things head south those 30% in bonds will provide a soft cushion. While you may be 20% in the red on your stocks, the OVERALL situation isn't so bad once you consider the appreciation of your bonds and the good old cash dividends.

However, not all bonds are created equal. These IOUs have different lengths, which affects how much the prices will swing. If you have a bond that is due in one year, you are less vulnerable to sudden price swings. A 30-year bond bought at the peak or bottom have many years to either underperform or exceed the rest of the market, which makes the impact of rate changes the more forceful.

Another thing to consider is the class of bond. A US Treasury bond is about as safe as they come - you know Uncle Sam will pay up next year - or 30 years down the road. A corporate bond in a struggling company may go belly-up before you get to cash in your bond, but on the other hand you may get twice as much return on your investment. The more risk you take, the juicier the potential returns.

For most people, the easiest choice is to go with a bond mutual fund. There, you only have to decide between short, medium or long term investment, and whether to go with a treasury, muni or corporate bond portfolio. Some companies have different specifics on what is what, so you're wise to do your homework to find the fund that works best for you. Vanguard and Fidelity are respectable bond fund companies to consider.

Last but not least, what is the ideal balance between stocks and bonds in your portfolio? There is no one-size-fits-all answer to that. Some claim your age is a good indicator: a 30-year old should have 30% bonds, a 55-year old should have 55% bonds. I think that's a bit too simplified. If you have a stable economic situation and don't mind taking risks, you can be 60 years old and have 90% in stocks and only 10% in bonds, while a risk-averse 25-year old doesn't have to be ashamed about an even 50/50 split between stocks and bonds. The bottom line: the more risk you can tolerate, the higher percentage of stocks you should have.

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Price Earnings Ratio

In today’s stock market, our 10 year-old bull market unfortunately seems to be turning bearish. With the Dow Jones industrial average nearing 11,000 and with a new high tech start up announcing a public offering every day, investors want more and more guidance on what’s a good buy.

With more Americans investing in the stock market, it’s also a good time to look at the No. 1 investing fundamentals.

• Basic Investment Strategies
  Before sinking your hard-earned funds into an account that may not hold up during times of economic uncertainty, explore some of the available options to make the best choice for your investment dollars.

It might seem like it’s harder to pick worthwhile stocks now. After all, there are just so many, and everyone — from your dentist to your minister — seems to have an opinion on the matter. But the best way investors have to determine the value of a stock they are thinking of buying or selling hasn’t changed. It has always been and still is the price-earnings ratio.

In the investment world, it’s referred to simply as “P-E.” Think of it as a stock’s price tag, because it tells you as an investor how expensive the stock is.

The ratio has long been considered the No. 1 way to evaluate a stock. It compares the price the stock is selling at to the company’s earnings per share, or the amount the firm earns on each share held by the public.

Calculating the ratio is easy. Simply divide the price by earnings per share. Newspapers, financial Web sites and corporate annual reports often have P-E already calculated, of course.

Basically, the ratio shows how much of a premium, or how many times earnings, you will pay to own part of that company. Conversely, you could say it also shows how much of a discount you are getting for an undervalued stock.

So, the P-E of a stock that trades at $60 and has earnings per share of $3 is 20. In other words, for every $1 of earnings, you as an investor are paying $20. Another way to put it — and you hear this a lot from brokers and fellow investors — would be to say the stock is trading at 20 times earnings.

In the past, stock gurus have maintained that a good P-E falls somewhere between 15 and 30.

Of course these days with stocks — especially high-tech start ups trading sometimes well above $100 and posting no earnings, this is a moot point. The P-Es are huge. Investors and would-be investors are left depending on their instincts to determine if a company is going to post earnings and be worth the investment down the road.

Speaking of the future, another good measure to consider is the forward P-E. It simply uses a company’s or analysts’ earnings estimates for the next four quarters to calculate future P-E.

For the most complete P-E picture you could then look at trailing P-E. Simply use earnings per share and price figures for the last four quarters.

Picking and buying stocks is hardly an exact science. However, with the price-earnings ratio, along with data on the forward P-E and trailing P-E investors undoubtedly are better armed to make the best investment decision.

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Creating Cash Flow Formula for Your Investment

Many of us invest in the stock market for long term growth. However, there may be times when you need to generate some cash flow and there are some relatively safe strategies you can use to produce income. One of these strategies is known to many stock brokers as channeling.

Winning the Cash Flow War: Your Ultimate Survival Guide to Making Money and Keeping It by Fred Rewey A proven path to success for anyone seeking financial freedom in today’s challenging world

There are certain stocks that move within a specific price range in a repeatable pattern and while this can be frustrating for a long term growth investor, it provides a wonderful opportunity for those who could use some extra cash.

The following is an example to show you how this plan works. You bought a stock we will call “xyz” at four dollars a share. In a few weeks, the stock moves up to around six dollars a share before falling back down to the four dollar price range. How is this going to make you money you ask? Simply by selling the stock at six dollars. And when it falls back down around four dollars, buy again. Repeat this method over and over again, of course each time you will have more money to buy more stock.

Let’s say you bought 1,000 shares of xyz at $4.00. That would mean you had to come up with $4000.00 for your initial investment. Several weeks later, the stock has moved up to $6.00 and you sell. You now have $6,000.00 which means you have made $2,000. The stock falls

back down to $4.00 a share and you buy in again, only this time you buy 1500 shares at $4.00 which equals $6,000 cash out. When the stock rises back up to $6.00 sell again. This time you will have made $3,000.00. 1500 shares X’s 6.00 a share equals $9000.00 minus $6,000.00 equals

$3,000. See how it works? Eventually, you will build up quite a bit of money from doing this play over and over again.

However, there are a few things to keep in mind. What if you buy the stock at $4.00 and then it falls down to $3.00 and never goes back up? You will have lost money then. One way to keep this from happening is to set a stop loss order. For example, place the order so that if the stock falls below a certain price, then the stock will automatically sell before the stock can fall any lower. You will lose a little bit, but you won’t lose the whole thing, and your money will be free to do something else.

What if the stock goes higher than $9.00? Won’t you lose out on the potential to make more? When you see the stock begin to climb close to the $6.00 mark, move up your stop loss order. Be careful to not squeeze it too closely, because sometimes a stock can fall back momentarily only to surge up higher and limit your potential by selling too soon. So when the stock climbs up to $6.00 place your stop loss order at $5.75 (example only) and then if it moves on up to $6.50 then move the stop loss up to $6.25 and so on.

You should however, have a pretty good idea of when to buy and when to sell. If you wait to sell too long, thinking it will go higher, then you could lose out because the stock can drop back down quickly. Just be sure to use these strategies to keep that from happening.

I am sure many of you are now wondering where you can find these stocks? One thing you can do is buy a Wall Street Journal and the use a free Internet stock chart and then start researching the stocks. It is important to realize though that when you are starting out, especially with a small amount of money to buy stocks within the $1.00 to $15.00 ranges. You can buy more stock this way and your returns are really not that much different from the more expensive stocks at this point.

On the charts you should be able to see a repeatable pattern of the stock fluctuating between a certain price. Of course it isn’t as clear cut as it never falling below 4.00 or rising only up to $6.00. You should take a piece of paper and place it horizontally across the chart and see how many times it has hit a certain price, also where the basic support line is at the bottom price range also.

Take your time and be patient. Research your companies well. Keep in mind here though that many lower priced stocks up to $5.00 don’t always have just a whole lot of information. Only use money that you can afford to gamble with a little bit. But if you will use these strategies, then you should be able to greatly reduce the risk of losing which will enhance your chances of creating a steady stream of cash flow.

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