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
  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 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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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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Introduction to Folios Investment

There's a new investment vehicle on the horizon, a cross between mutual funds and discount brokerage. That new vehicle is called folio investing. You may to check it out.

The Folio Phenomenon: New Freedom to Customize Your Investments and Increase Your Wealth by Gene Walden Discusses everything investors need to know and constructs a number of sample folios, including: Powering up with a utility folio Selecting a folio of blue chip all-star stocks Investing

Here's how it works:
You purchase in a single transaction a folio of the stocks you select. You can allocate your investment among anywhere from one to 50 stocks. You can invest an equal number of dollars in all the stocks or specify the percentages. The company then invests according to your instructions.

Folio companies have model folios that you can invest in or modify. For example, you can select a folio based on a major index, such as the S&P 500. You can select a pre-made folio based on large cap growth stocks or mid cap value stocks.

If you see a model folio that almost fits your needs that you want to modify, that's no problem. If, for example, you like a particular folio, but don't like the tobacco stock in the folio, you don't have to own that stock. Just instruct the company not to purchase that stock for you and it won't.

You also are free to ignore the model portfolios and allocate your stocks according to your own criteria.

With folio investing, you can make changes in your portfolio any time you want--daily if you wish--by giving instructions online. You can send in more money and have it invested in the same proportion as your existing folio and you can withdraw part of your investment and keep the remainder invested in the same proportion. You can change your allocation as often as you want.

You can have an IRA inside a folio account.

One thing you cannot do with a folio is day trade using limit orders. To achieve economies of scale, the folio companies trade only a limited number of times each day. Therefore, you may or may not get a pre-determined price of the day either when you buy or sell. Folio companies do allow you to instruct them to cancel a trade automatically if the price of a stock rises or falls by a predetermined amount.

Folios charge a flat fee--usually about $300 a year. That fee allows an unlimited number of trades and changes in folios. Second and subsequent folios have lower costs.

To keep costs down, folio companies use the Internet rather than telephone or postal mail for many of their communications with you. Statements, trade confirmations, and other communications are sent by e-mail. You  send in all your instructions through the Internet as well.

At the end of the year, folio companies will send you a statement of trades that you can use with your tax program. IRA's are available.

As with any investment vehicle, folios are better for some investors than others. Here are the types of investors that would appear to benefit from folios.

If you have large holdings in mutual funds, the expense fees of the mutual funds may be more than the flat fee you would pay to the folio company. Look at your fund's expense ratio and how much you are paying for your holdings.  If it is significantly more than the folio fee, you might want to look at a folio.

If you have a diversified portfolio of stocks which you trade occasionally and are a "hands on" investor who buys and sells stocks on a somewhat regular basis, you might find that the annual fee for the folio is noticeably less than the fees that a discount broker charges.

You probably would not want to own a folio, however if the size of your portfolio would make the fees prohibitive. If you have, for example, only $5,000 in mutual funds, the annual fee would be more than your current expense ratio.

Also, if you trade very frequently to take advantage of small price fluctuations folios may not be for you. Since folios only trade at preset times, you may or may not get that extra 1/8 point. You are better off with a discount broker if you want to do that kind of frequent trading.

Folios investing are not for everyone, but for the right person, they can provide diversification and an opportunity to get diversification and control over your portfolio at an affordable price.

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Exchange Traded Funds

As the name put forward, Exchange Traded Funds are a blend of a stock and a mutual fund, in the logic that:

• Similar to 'mutual funds' they contain a set of particular stocks - e.g. an index like Nifty, or a commodity - e.g. gold; and
• Similar to equity shares they are 'traded' on the stock exchange on real-time basis. How it works?

Investing with Exchange-Traded Funds Made Easy: Do It Yourself Strategies Without Paying Fund Managers by Marvin Appel Explains exactly how ETFs work, what they can and cannot do, and why they’re not all equally attractive. Then, drawing on objective data and proven, back-tested strategies, he shows you how you can quickly move into the right ETFs at the right time, consistently staying on the winning side of major market trends.

In usual mutual funds, one buy/sell units directly from/to the primary market. First the money is collected from the investors to form the corpus. The fund managers then use this corpus to put together and manage the appropriate portfolio/ asset allocation based on the risk profile chosen.

Whenever you would like to redeem your units, a part of the portfolio is sold and you get paid for your units. The units in conventional mutual funds are, consequently, called 'in-cash' units. But in Exchange Traded Funds, we have somewhat called the 'authorized participants' .They will first deposit all the shares that comprise the index with the AMC and receive what is called the 'creation units' from the AMC. While these units are formed by depositing underlying shares, they are called 'in-kind' units.

Payback of investing in Exchange Traded Funds

• Handy to trade as it can be bought/sold on the stock exchange at any time of the day when the market is open.
• You can short-sell and ETFs or buy on margin or even purchase one unit, which is not possible with mutual funds.
• Exchange Traded Funds are without interest managed, have low sharing costs and negligible managerial charges. For this reason most Exchange Traded Funds have lesser expense ratios than usual mutual funds.
• Exchange traded funds are not something which is directly managed by the fund managers. Therefore, does not depend on the fund managers.

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Transferring Your Mutual Fund Accounts

To transfer mutual funds from a mutual fund company to a brokerage, or from one brokerage to another, you'll need to fill out some paperwork.

You get the forms from the company that will be receiving the funds. For example, if you are transferring your funds from Brokerage X to Brokerage Y, contact Brokerage Y for the forms.

Some brokerages have the forms on the internet. You can fill out the forms online, print them out, sign them, and then mail them to the brokerage. Some of these brokerages also have step-by-step tutorials to help you fill out the forms. Alternatively, you can call the brokerage and ask them to send you the forms in the mail. In either case, you will need to attach a copy of your latest statement from your old company (in our example, Brokerage X).

If you are transferring the funds to a brokerage where you already have an account, the form you need to fill out is called an Account Transfer Form. If you do not already have an account at the brokerage, you can open an account and transfer funds at the same time by attaching an Account Transfer Form to your new account application.

Not all mutual funds can be transferred. In particular money market funds and proprietary funds cannot be transferred to a new brokerage company. A proprietary fund is one that is issued by the company you bought it from. For example, Brokerage X may have sold you shares in its own in-house fund called the "X Fund." You will not be able to transfer those shares elsewhere. Instead, you will have to sell your shares and then transfer the cash.

If the mutual funds you are transferring are in a retirement account that is NOT an account that you have through your employer, you should be able to transfer the funds using a form supplied by the receiving brokerage designed specifically for the type of account you are transferring -- i.e. IRA, Keough, etc.

However, if you want to roll over a fund that is part of an employee benefit plan, you should contact your plan administrator, rather than the receiving brokerage company. Your plan administrator will tell you if you are eligible to roll over your account and will explain what the procedures are. You might also want to talk to a tax advisor to see if there are any tax consequences to rolling over your account.

It should take less than a month to transfer your funds from one brokerage company to another. If it takes longer than that, first try to work with the receiving company, then with your old company. If that doesn't resolve the problem, contact the SEC, the National Association of Securities Dealers, or the state agency that regulates securities dealers.

Note: People often think that if they exchange their shares from one mutual fund for shares of another mutual fund within the same fund family, they are transferring the funds. However, this is not the case. What actually happens is that the shares from the first fund are sold, and then the proceeds are used to buy shares in the second fund. This means that there will be tax consequences, unless the funds are being held in a tax-free retirement account.

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Basic Investment Strategies

Everyone should have a financial plan that includes long-term investment strategies. These can range from no risk to significant risk, depending on the type of program you decide to invest in.

Guide to Investment Strategy: How to Understand Markets, Risk, Rewards And Behavior by Peter Stanyer, Elroy Dimson With detailed analysis supported by data and anecdotes drawn from investment experiences, this practical guide emphasizes the importance of basing recommendations for investment strategy on the principles of traditional finance.

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.

The New Investment Superstars: 13 Great Investors and Their Strategies for Superior Returns by Lois Peltz New Investment Superstars provides you with a unique opportunity to get to know these market masters and learn the original investment strategies they have used in many markets to outperform their peers.

The safest type of investment plan is a simple bank savings account. Since the federal government insures most financial institutions of this type, you should not fear losing your deposits or the interest they earn. However, the return on this investment is quite small, especially when the economy slows.

Savings bonds are another safe but slow investment. They mature after seven years, doubling in value. These provide a great option for teaching children how to save by purchasing small bonds and watching them grow over time. Other types of bonds, such as municipal or treasury, are slow-growing and involve little risk.

The next level of investment is the certificate of deposit, or CD. These accrue interest at the prevailing market level, which usually follows the current prime rate. Insured by the FDIC, they provide a safe investment but offer a relatively small rate of return. However, there is no penalty for early withdrawals except quarterly interest, so your money remains “liquid,” or available when you need it.

Individual retirement accounts, or IRA's, are long-term savings plans that, generally speaking, become available (with interest) when a person reaches retirement age. There are penalties in terms of lost interest with early withdrawal.

The Only Guide to a Winning Investment Strategy You'll Ever Need: The Way Smart Money Invests Today by Larry E. Swedroe Contains a new chapter comparing index funds, ETFs, and passive asset class funds, an expanded section on portfolio care and maintenance, the addition of Swedroe's 15 Rules of Prudent Investing, and much more.In clear language, Swedroe shows how the newer index mutual funds out-earn, out-perform, and out-compound the older funds, and how to select a balance "passive" portfolio for the long hail that will repay you many times over.

Purchasing stock shares of a publicly traded company is another way to invest your money to make money when the company does well. Profits are distributed to stockholders as dividends or can be compounded into the stock holding to accrue a greater amount of interest over time. Depending on the company's stability and the economic climate as well as the number of shares you hold, stock holdings can be a volatile or safe investment. Become familiar with the company so you have an idea of what to expect.

Mutual funds are an attractive and popular investment option for long-term moneymaking dividends. A mutual fund is actually a portfolio of varied stocks that is compiled by a broker who advises the client about what to buy, sell, or hold. Since mutual funds include a diversified array of stock shares and compound with interest, they can be a relatively secure investment. But there are low risk, moderate risk, and significant risk options. You can invest in American companies or acquire international portfolios comprising European, Asian, or Pacific Rim stock holdings, for example. Ask a broker for details on the best plan for your interests.

Start saving for the future by investing money in an account that will a rate of return that suits your temperament. You can begin with a savings account, progress to an IRA, and put a little aside for riskier ventures in the stock market. An important rule of thumb is never to invest what you cannot afford to lose.

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What is an Index Fund?

Investing with Exchange-Traded Funds Made Easy: Higher Returns with Lower Costs - Do It Yourself Strategies Without Paying Fund Managers by Marvin Appel "Today, exchange-traded funds are the most innovative and rapidly growing investment vehicles. Marvin Appel’s new book provides, in a highly readable framework, a wealth of information on what they are and–more importantly–how private and professional investors can use them to build wealth through a simple and easy-to-implement investment program."

Most investment and financial planning experts agree that a mutual fund is an ideal way to maximize the potential of your investment while at the same diversifying your portfolio and reducing your risk. This is because a mutual fund is a collective effort – rather than you as the individual investor selecting stocks or bonds or other investment vehicles in which you’d place your money, instead you give your money to a mutual fund manager. The manager takes all the money that all of the investors have given the fund, and then uses that money to buy quantities of shares in a variety of investments. In this way, by making one investment, you are able to own shares of stock from across the board. This is automatic diversification – if one company that the fund holds does poorly, it is a good bet that another of the myriad investments will do well. On the other hand, if you bought stock on your own, and it performed poorly, you would simply lose money.

The bet here is that the mutual fund manager is going to a better job than you in selecting stocks – this is their profession after all – and at the end of the year the return on the fund will depend on how well the manager predicted the markets. There are many kinds of mutual funds – large-cap, mid-cap, small-cap, aggressive-growth, etc. The list goes on and on, and sometimes it is difficult to know what kind of fund is best for you. Investment experts crow about the benefits of each type of these funds, but the fact of the matter is that unless the mutual fund manager is exceptional, there is little chance that he or she is going to do better than the market indexes themselves. In fact, it is estimated that only about 20% of actively managed funds have done better than the stock market average over the past two decades. If the idea of putting your money in the hands of a mutual fund manager who tries to beat the market sounds like too risky a proposition for you, then an index fund may be the answer.

An index fund is really quite simple in its premise: the investments in the fund are designed to behave as the market does as closely as possible. This is done by selecting an index – the S&P 500 and the NADSAQ 100 being two of the most popular, though others exist – and then buying shares in companies listed in that index at about the same ratio as they exist in the market. This takes the guesswork and the predictive element out of the fund’s investing practice. In fact, most of these funds are run by computers and a small support staff, since the buying and selling of shares are based purely on another quantifiable index. This has a number of advantages for investors.

First, index funds are cheaper than regular mutual funds. This is because mutual fund managers make millions of dollars a year to handle your money, and their support staff costs millions of dollars per year as well. This money needs to come from somewhere, and unfortunately, it usually comes from the investor in the form of a high expense ratio. While the expense ratio for some mutual funds can be between three and four percent, index funds are usually less than one percent. A matter of a few percentage points may not seem like a big deal at first, but consider that the money is coming out of your pocket – and your future earnings. That small percentage can actually translate into tens of thousands of dollars over the long term.

Second, index funds have a lot less risk, and actually on average make more money. While the upside to risk is that the payoff can be greater, the downside is that the losses can be considerable. Because index funds merely ape a chosen index, there is no chance that a manager is going to blow your investment by suddenly believing that cathode ray televisions are going to become popular again. As mentioned earlier, it is extremely difficult to “beat the market” (which is why mutual fund managers earn such egregious salaries), and for eighty percent of these highly paid managers, it has consistently proven too difficult to do. In fact, over the past two decades, the average return on the market has been about 13%, while the average return on a mutual fund has been about 11%, which makes index funds seem even more appealing.

One disadvantage to index funds is that they are more of a slow-growth investment. If you are the type of investor who likes to get in and out of the market, buying and selling frequently, index funds may not be for you. Because the market has traditionally grown slowly over the years, with very few years of seeing massive returns or losses, index funds are perfect for people who have a number of years to let their money mature. For this reason, many experts recommend index funds as part of a retirement portfolio, especially if you are fairly young.

Index funds are certainly not the most glamorous of investments. However, they consistently provide a better return than most mutual funds, providing all of the benefits of those investments without the risk.

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Learning to Evaluate Stock Market Risks

The Equity Risk Premium: The Long-Run Future of the Stock Market by Bradford Cornell An understanding of the equity risk premium is important for informed financial decision making. Cornell's book does an excellent job tying together historical, empirical, and theoretical analysis of the premium in a package accessible to practitioners as well as academics.

So, you've finally got some money of your own, and you'd like to see it grow... perhaps standard savings offers too little growth potential, or maybe you're looking for something that offers a little more risk (and hopefully a much larger return.) Whatever your reasoning, the stock market can be a wonderful investment tool... but it helps to keep an open mind and know what to look out for.

The first thing that you should keep in mind is that the stock market isn't a tool for instant success. Yes, you can get wealthy playing the market, but that often takes a diverse portfolio, a lot of work, and years of time. It's true that a lot of people get rich off of sudden "hot" stocks, such as the "dot-com" boom of the 90's, but once the initial swell ends the stocks tend to crash. Buying the hot stocks can be exceedingly risky, since they're going to fall and fall hard in a relatively short period of time, and they're going to take a lot of people's money with them. If you must play hot stocks, keep a constant eye on them and try to sell them when they start to level off or drop.

Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice (Princeton Lectures in Finance) by William F. Sharpe Presents a method of analyzing asset prices that accounts for the real behavior of investors and makes this technique accessible through a new, one-of-a-kind computer program (available for free on his Web site, at http://www.stanford.edu/~wfsharpe/apsim/index.html) that enables users to create virtual markets, setting the starting conditions and then allowing trading until equilibrium is reached and trading stops.

Next, to help avoid risks, you need to be sure to diversify your portfolio. Now, you've probably heard this time and time again, but you might not know what it means... basically, buy a little bit of a lot of different types of stocks and bonds. That way, when one type of stock is down, another may be up and the losses will balance out. You should definitely purchase stocks in the technology sector, telecommunications, biomedical, and consumer corporations. Supplement this with precious metal and diamond indexes, and some general investment funds. Start with a few shares of a few different stocks in each of these fields, and then add to it as time goes by. You can also branch out into other areas (such as defense companies), and the base portfolio you build will help to shield your money a little bit from riskier investments that you may want to make later.

Some companies, such as Johnson & Johnson, are sometimes referred to as "safety stocks". It's a good idea to have several shares of companies such as this in your portfolio, as what they lack in large growth they make up for in consistency. These stocks rarely fluctuate and most often offer a slow and steady growth, thus giving you a strong backing in your investments.

One thing to watch out for is hearing about some stock that's "about to go big" or something along those lines. Often such tips are from disreputable sources and are for stocks that are either junk or nearly worthless. Investing in these stocks might show a decent initial return, but will most likely plummet soon after. Read the Wall Street Journal or watch the stock reports on news networks to research your stocks, and use online resources too see how they've been performing in recent weeks. Beware of the "get rich quick" schemes, as they'll often leave you much worse than you started.

Other than that, much of your investing future is up to you. Buy stock in brands and companies that you know and trust, as well as those that show promise; if the stock starts to dip, decide whether you should sell it or keep it for it's long-term potential. Reinvest dividends, since that'll give you more stock for the same initial investment, and if a stock that has been performing well in the past takes a dip remember that it could be an opportunity to purchase additional shares for a lower price. And always remember that the stock market is best used as a long-term investment, not as a way to make a quick buck.

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Buying Growth Stocks / Mutual Funds

There are two fundamental types of stocks; income stocks and growth stocks. Income stocks are those that produce a high yield, a dividend, and sometimes a high level of capital appreciation. Growth stocks are more volatile, but produce quicker profits—and losses—than income stocks. So, while there are some strong and steady stocks out there giving a nice quarterly or annual dividend there are just as many, if not more, stocks that are expected to show rapid earnings and strong revenue growth. Of course, many of these companies do not gain quickly; rather, they often lose at a rapid pace. This is why growth stocks can be a potentially dangerous investment source.

Growth stocks come in a range of categories, based on total value, as determined by taking the price of one share and multiplying it by the total number of shares outstanding. There are four main types of growth stocks; large-cap, mid-cap, small-cap, and mico-cap. Large-cap companies have a value of over five billion dollars, mid-cap stocks fall between the one billion and five billion mark, small-cap stocks value under one billion but above two hundred and fifty million dollars, and micro-cap stocks represent all the rest below two hundred and fifty million dollars.

• Guide to Mutual Fund Investment

So, which type of stock should you invest in? Some people say the larger the cap, the greater the risk. This is somewhat true—larger sums of money invested can lead to large losses should a company go south. However, they can also lead to large gains after good news, a merge, or a spike in the market. Large-cap companies also have a tendency to be more stable and established than smaller-cap stocks. These large companies have had to build themselves up to reach the highest category; therefore generally the fundamentals of the company are strong. However, nothing is certain on the stock market, and large companies can crumble, and crumble fast.

If the prospect of losing all your money does not intimidate you, you might want to check out the small to micro cap stocks. Investing in smaller-cap stocks will be up your alley if you like researching companies, taking risks, and benefiting from your investigations and intuitions. Small-capitalization growth stocks, as a group, have exceeded, handedly, the overall returns of larger stocks since 1925. Little stocks can result in great gains to their dynamic qualities, but because they react to drastic news they fall rapidly as well. If you need to make money to make your mortgage payments small-cap investment is not the route for you. Smaller-cap stocks are for people who can afford risk, or those with a portfolio that is diverse enough to support a possible loss.

Small-cap stocks are a good investment because mutual funds and institutions cannot often buy them, or if they can, only in small doses. Regulations permit the individual stockholder to invest in these smaller companies first. Companies like Microsoft and Wal-Mart began as small-cap, and as a result, the little people had the first stab at jumping on the bandwagon before the institutions and mutual fund giants stole the show and caused the prices to soar. The ideal scenario for the small investor is to buy shares in a company then sell their shares to institutions when they enter the scene as the company grows in value.

Another reason to purchase smaller-cap stocks is that earnings traditionally grow fastest among small companies. This is due to several reasons, one of which is that management generally holds a tight watch over the company. The people running the show have financial interest in the company’s success; therefore growth is a typical precipitate. While investing in smaller stocks is exciting, you should diversify your portfolio as much as possible. Investing in mutual funds or large-cap blue chips is always recommended to supplement smaller-cap investments.

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Guide to Mutual Fund Investment

In layman’s terms a mutual fund is an investment company that pools money of many investors and invests it in a variety of securities, including bonds, stocks and short term money market instruments. Shares of the fund are offered, and can be sold back to the fund at anytime at that day’s share price. This fund is managed by a professional who uses the pooled money to buy these securities and monitors each of these investments on an ongoing basis. Since, the fund uses cash from the pool of savers to buy a wide range of securities like stocks, bonds and real estate; it leads to a diversification of investments of each investor. This is because each investor owns small units of each of the funds investments. Thus, professional management and diversification are the two most important benefits of mutual fund investing.

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There are two types of funds, either open-ended or closed ended. As open-ended investments, most mutual funds continuously offer new shares to investors. The price of the shares is determined by dividing the total net assets of the fund by total number of shares outstanding. Closed-end funds issue a fixed number of shares in an initial public offering. In both the cases, they charge a management fees for these services which is typically 1% or 2% an year. Apart from that, funds also levy other fees and take sales commission, known as load, if purchased from a financial advisor. Though mutual funds offer individual diversification and professional management, but they limit investor’s ability to control the holdings and tax liability. Apart from that fund owners also pay an expense ratio, which is a percentage of their total investment amount.

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Mutual fund Companies are generally registered with the SEC under the Investment Companies Act of 1940. All funds are also supposed to issue prospectus which is a document clearly stating its strategy or “investment style.” Mutual funds with open ended investments issue redeemable shares and are distinguishable from closed-end funds whose shares are tradable in the secondary market. There are a variety of goals offered by the mutual funds to the investors, depending on the fund and its investment charter. For example, some funds generate income for the investor on a regular basis, while others seek to preserve the investor’s money. There are other funds too which invest in companies that are growing at a rapid pace.

There are various categories of mutual funds, including but not limited to money market funds, equity funds and index funds. A money market fund is the one which invests in short- term and stable securities. These funds are easily convertible into cash and usually maintain an unchanged value of $1 share. However, money market funds aren’t insured by the federal government. An equity fund on the other hand is the one where the investor possesses an ownership in various corporations/ companies by way of holding shares in these corporations.

Index funds are a class apart. In this type, funds are invested in stocks and bonds that constitute an index. This is done in such a way that the fund matches the performance of the index. Here, index means grouping of stocks to represent a certain market segment. Index funds have other advantages too, such as tax efficiency and low expenses. The Vanguard group is a very good example of an index mutual fund company. Vanguard is known for its index funds. It avoids making bets on interest rates and steers clear of narrow stock groups. Fund managers keep the trading levels low, which holds the expenses down; in addition the company discourages customers from rapid buying and selling, because doing so drives up the cost and requires a fund manager to trade in order to deploy new capital and raise cash for redemptions.

To conclude, whatever be the type of fund, investing in mutual funds is always a safer bet and a prudent decision when you are new to the stock market. This is because mutual funds are professionally managed and the chances of loss are minimal as the investment is diversified.

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