Jul
12
Learn to invest money - with funds
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If you want to learn to invest money the first thing you should know is that it is not as hard as you might think. In addition you’ll also be pleased to know that it may require much less money than you initially feared to get yourself started making successful investments.One of most important things to learn before investing is to not take too much risk. A great way to do this is to select to invest in a managed fund. By doing so you are effectively outsourcing the specialist role of smart stock investing or picking or investment appraisal to an experienced professional. In addition by investing in a fund allows to quickly diversify your investment portfolio. If you have say $500 to invest you could opt to buy some stock in a company such as Apple. Assuming the price rises this could be a great investment however if the stock falls in value by 50% your investment will only be worth $250. By contrast if you had invested in an investment fund that aims to track the S and P index of shares, the effect on your investment of Apples poor performance will be diluted as in reality your $500 will be invested in all of the shares in the index. This effect is called portfolio diversification.Traditionally investing in funds has required large lump sum investments, however the emergence of Exchange Traded Funds (ETFs) has meant small scale investors can invest in such funds using relatively small amounts of money. ETFs are funds that are traded in much the same way as stocks are.
Jul
10
Asset Allocation for Foundation and Endowment Investment Portfolios
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Foundations, endowments and other not-for-profit organizations come in all shapes and sizes. The assets that they control and manage for the benefit of countless projects, charities, and causes is staggering in total and it has become a primary market for the vast array of investment products developed by Wall Street financial institutions. One can only speculate about how much “bubble paper” finds its way into the these portfolios, but nearly all of them are managed by the major brokerage firms, and all such firms bonus their brokers on the basis of product sales. It is not uncommon for Wall Street to re-write the syllabus for Investments 101, redefining quality, diversification, and income to suit its own dark purposes…More…If you were to look back at your foundation/endowment/not-for-profit portfolio of the late 90’s, how much was invested in NASDAQ issues, either directly or in the form of mutual funds? Dot-coms? Don’t be at all surprised if your more recent reports (2006 thru 2008) are replete with CMOs, CDOs, index funds, foreign investments, asterisks, footnotes, etc. This is the type of investing that is standard fare on Wall Street and it is certainly something that you need to be concerned about. Wall Street pros always move the money toward whatever is most popular at the moment. Always, no matter how late in the cycle it happens to be.Regardless of the proprietary label given to this new age, scientific asset management, the speculation level is barely above that of options, commodities, and futures. You don’t need to go there to achieve the goals of your organization… plain vanilla stocks and bonds are not broken, they have just been replaced with better income generators for the wizards of Wall Street. I understand that they’ve even been able to change the “prudent man rule” to allow unusually high risk, get this, so long as the potential reward is equally significant! Have I gotten your attention?From what I’ve been reading, it seems that the disbursement-budget determination process in some organizations is based on information that has absolutely nothing to do with a portfolio’s ability to generate the money being disbursed. Similarly, it appears as though all investments are expected to grow in market value all of the time, irrespective of where mother nature’s investment twin is in developing her various cycles. Somehow, a higher market value translates into higher availability of disbursable funds, when, in fact, no such relationship exists.Some organizations determine their annual disbursement budget based on the average market value of the investment portfolio over the past several years. If the investment markets cooperate, and the market value remains above the average, the disbursements take place as scheduled. If not, some beneficiaries may have to go without. This is unnecessary, as well as absurd. The average market value of the portfolio is not what determines the amount of spendable income the portfolio produces. The market value approach also assures that payouts will decrease just when they are needed the most… when the market is in a prolonged correction, donor contributions are down, and interest rates or inflation (or both) are trending higher. Let’s say, for example, that we have a portfolio invested solely in government bonds yielding 6%. This 6% will be available for disbursement regardless of the direction of the portfolio market value. Lower valuations are always opportunities to add to holdings; higher ones should provide profit-taking opportunities. Similarly, a portfolio invested in equities with an average dividend yield of 1.5% just will not cover a 4% disbursement nut unless something is sold… a sale that could well be a losing transaction. (Wall Street pros take losses quickly, but rarely take profits in the same manner.)The amount of base income produced by a portfolio is very predictable. In the case of most foundation and endowment portfolios, the rate of annual additions from contributors can also be safely, and conservatively, estimated. Creating a portfolio that produces enough income to cover programmed disbursements, even with a three-month money-market reserve, is simply simple… and has absolutely nothing to do with the portfolio market value. Another thing to look for, as a trustee or director of your organization is the profitability of sales transactions. The results may surprise you.Inflation is a purchasing power issue, and purchasing power depends on income. Hoping, as many people do, for an upward only portfolio-market-value scenario is, at best, comical. A properly designed portfolio will constantly generate increasing levels of base income at varying market value levels, and that is the stuff from which disbursements are made. If the payout rate to beneficiaries is 4% (of working capital, perhaps) and we want to increase the dollar amount of the 4%, we need simply to increase the assets that are producing the cash flow… by reinvesting some of the income and contributions appropriately.Increasing the market value of the securities looks good but generates no additional regular spending money. In fact, higher yields are always more readily available when prices are down than when they are up… go figure. Really, go figure.If we can (through proper asset allocation, and a portfolio management methodology that focuses on working capital) increase our investment in our income producing securities base, we can stay ahead of inflation and satisfy our commitment to whatever cause it is that concerns us. This can be done with much less risk than most not-for-profit board members have become used to in recent years while they blindly chase the gold ring of ever higher market values. Market value, though, will cycle to new highs periodically, as the stock market, interest rate, and business cycles move on down, and up, the road. Isn’t the primary purpose, after all, to grow the distributed benefits? As important as income is to the achievement of your disbursement goals, there is certainly a place for a diversified portfolio of investment grade value stocks within the asset allocation. You will have difficulty convincing your broker to stick with IGV stocks, and to trade them for short-term profits. Frankly, most are inexperienced at doing so. But your tax status, size, and mission are perfect for this kind of strategy. Your investment manager should take care of the income part of the asset allocation first, before venturing into the riskier realm of equities. Stop! No matter what you’ve been told lately, quality income investments are always less risky than even the best equity investments. What about the 2007 CDO mess? Junk is junk, no matter how pretty the package. You have a fiduciary responsibility to understand what’s inside your not-for-profit investment portfolio… even if you think that you are pleased with its recent performance. It just makes good sense to get another opinion. Similarly, if you donate money to a cause that interests you, the general structure and content of the investment portfolio should be of some interest. Complicated products with trunches, and multi-level ifs-ands-and-buts are for arbitrageurs and speculators. Any investment product that requires a masters degree in quantum mathematics to decipher is hiding something… and that something is excessive risk. To read another topic on different site categories, please visit recursion, strojmat, maesc, cubaaction, dengarblog, soahubs, doktermuda, ririn’s, bazzanella, playyourpart, sielmob, spazphotos, and groesbecktennis.
Apr
1
Investment in India Looking Confusing? See What Analysts are Saying
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In the past few years Indian stock markets have done tremendously well, and this story is luring more active NRI investors - non resident Indians from around the world. Indian economy is witnessing a major flux of capital inflow into both real state segment and capital markets of India, and all this is especially due to the growing investment opportunities that are being available to NRIs, PIOs and OCIs in India. There are a number of factors that have propagated an increment in the percentage of investors over last year numbers, and these few major reasons that have boosted the over NRI investment in India, categorically in buying/selling of Indian stocks and NRI mutual fund investments are: Read more
Mar
20
Country living - no thanks?
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In a week when much attention has been paid to the issue of eco-homes, including the public backing given to them by ex-deputy prime minister John Prescott at the Chartered Institute of Housing’s south-east annual conference and exhibition in Brighton, the question of building and house prices in the country has reared its head again.
For those looking to ensure that rural areas are well stocked with affordable, as well as green homes, this is a great opportunity. Gideon Amos, chief executive of the Town and Country Planning Association, said: “The eco-towns initiative provides the opportunity to marry the social need for more affordable housing and community infrastructure with the environmental and economic issues associated with housing growth, such as sustainable public transport, protection of biodiversity and low and zero-carbon energy provision.”
Yet such lofty ideals appear to be lost on some. Today the Campaign to Protect Rural England (CPRE) released the results of a survey on public views about the government’s housing plans. The poll, conducted by ICM, found people to be apparently split down the middle on the issue of government housing plans. 53 per cent were against the plan to build three million new homes by 2020. 46 per cent thought such developments would have a negative impact on communities and 50 per cent believed that landowners and developers would be the principal beneficiaries of such plans.
Another finding of the survey revealed clearer support, with 77 percent believing a higher priority should be given to bringing unoccupied homes back into use, while half also thought more concentration on brownfield building should be undertaken. Read more
Mar
2
Every time a bears market comes around people panic. They panic because the stocks they bought that made money when the markets were bullish are losing money when the markets are bearish. They don’t know that if you want to make money during a bears market you should trade bearishly. When the markets go down many market professionals make a killer by implementing bearish strategies. Today I will teach you 5 bearish strategies used to make money while the market is heading down. So get ready to ride the market crash all the way to the bottom with us. 1. Shorting stocks. Your broker has many long term stocks which they hold. They do not care what happens to them as long as they make a profit in the long run. Let’s say it is trading at $100 you can borrow their stock and sell it. This makes you an instant $130. Then if the stock drops to say $90 you can buy it back at $90 and give it back to your broker. In this example you made $40 per share.
2. Buying puts. When you buy a put for a stock you buy the right to sell a stock at a given strike price. That way if the stock’s price drops our puts price goes up. If we bought a put with a strike price of $130 on the same stock for $6 we could have made money while the stock goes down as well. The difference between the puts strike price and the stock is $40, so your put would be worth at least $40. Buying puts is a highly leveraged way of trading and will eventually expire worthless if not sold by its expiration date. Read more
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