Entries Tagged 'ETFs' ↓

One of the reasons people have lost so much money in the stock market recently, whether in their 401(K) accounts or otherwise, is that many of us never took the time to really learn to invest money. We were often “sold” the idea that mutual funds were safe, easy and didn’t require much in the way attention, because “over time” the stock market always goes up and stocks offer the best returns compared to bonds or other vehicles.

Well, that was pretty much not true. (Statistically, it’s only true if you are VERY selective in how you read historical data, and do not discount for inflation.) No matter what, all investors need to learn to invest stock, learn to invest money, and understand the stock market and how the cycles of the market work. In addition, it’s been pretty clear that the market was affected by unique financial instruments as well as a real estate bubble which continues to this day and may continue for the next few years.

So as you try to learn how to invest safely, whether it’s invest in stock, invest in bonds, or even invest in real estate, you have to realize you will never stop learning, because the market is dynamic and changing.

You will also find that there is no way to calculate returns, that is, promise returns of a certain percent, because “that’s what the market has returned historically”. the problem with that statement is that there is no historical measure that will match the exact years in which you are invested in the market. For example, if you started investing in the early 1990′s, after several crashed and discounting for inflation, you are pretty much back to where you started. Plus, historical returns do not mean that you will continue to get those in the future, as there are events that can occur – terrorism, bubbles and so on – that you can’t predict, and can affect your returns and investments dramatically.

There really isn’t any easy way to invest, because whatever else you do, you will have to put in the time to learn to invest according to your goals and risk tolerance, and it’s the time that few people have. You can’t simply rely on the market returns any more to just go up and up, so that you have a lot of cash when it’s time to retire. That does not mean there are not ways to invest money that will bring profits. It simply means that in order to make money in the market, you need to learn more, and also manage your accounts more actively than simply reassessing your holding once a year and that’s it.

To learn to invest money, the best way is to start with whatever services your broker offers. Many online brokers have a variety of educational materials, so that’s a good place to start. sites like Yahoo! Finance also offer many education materials and discussion groups for you to take advantage of. All of the major investing magazines, like Smart Money, Kiplinger’s and so on, have websites as well. That’s not to say that you should take their word for what to invest in, far from it. instead, use that information as a starting point. From there, you should also investigate good books about investing, from your local library, to learn to invest money in the right strategy for you.

So say we do have a depression, or a real bad recession. History shows that only through massive government spending – in the 1930′s it was WWII coming along, gov’t spending for the war – can we get out of the trough. It’s pretty clear the Prez is spending like crazy. But keep in mind, that some of the expenditures are also investments. Investments in a big way. Investments we’d be wise to mirror in our own portfolios.

Not only that – but the idea is, these investments will spur the kind of re-growth that builds our economy back up, but without the war and bloodshed. What exactly are our options here?

First – the green economy – green tech, green jobs – anything and everything green. Like it or not, industry new and old will have to be green. Believe in global warming or not, there is nothing wrong with making the world a cleaner place. In fact, it will make many, many people rich. And hopefully provide a planet on which to enjoy this new wealth. Will you be in on it, is the question?

Many people argue that green investment and things like cap and trade is in reality a tax on consumers of electricity. But that misses some major points. For example, we do not account for the “externals”, that is, we are not paying for the destruction we commit when we burn coal and create other greenhouse gases. We must begin to pay, because we can’t ignore the cost any longer. But also, with new green technology, the need to use dirty fuel will begin to lessen, so your costs as a consumer can go down thorugh conservation and adopting green alternatives. You won’t pay a consumption tax on something you don’t consume!

And keep in mind – the horse and buggy industry collapsed when cars came along. The mass transit revolution was trashed by government pushing cars and roads. So, here we are in another phase, where newer, better technologies are going to push out old dirty ones, and some companies will take a hit. But not for long, as alternatives come in like gangbusters into the marketplace.

Next there’s health care. Through technology there are major cost reductions to be had. The money is already flowing as part of the stimulus package.

A third investment the government is making is the auto industry. While it’s pretty volatile now, there’s a big committment to making sure we don’t lose all three automakers. which one or ones are left standing will grow into the future. (Could the Feds be unwiling to let GM go due to the release of the Volt next year? That works both for a green play and an auto play..)

Fourth, infrastructure and “shovel ready” future investments. A lot of increase has probably been built into companies short term already, but considering that there are a lot of bridges to be recuilt and schools and roads and so on, related industries re worth a look.

Ask yourself: What companies are on that bandwagon? What ETFs? What mutual funds? Look to invest in these in your 401(K), or start a self-directed IRA if you can’t invest in them through your workplace. Keep your eyes and ears open. Learn about the varity of investemtns out there. Don’t just save, but also conserve, put themoney aside into investments that make sense ina depression scenario. Don’t be a victim of it, ride the wave instead.

A big question in this crazy market it, “What should I invest in right now?” – especially if you are looking for investments that will protect your principal and also possibly make money.

The days of just parking your cash in an index mutual fund and waiting for 20 years are long gone.  It might be helpful to talk a little bit about setting up some self directed accounts, including a self directed IRA, what that means and why you shouldn’t be afraid to buy individual stocks, as well as options and other types of investments.

When you invest in a mutual fund, you are giving all the control and authority to the fund manager to pick and choose stocks, to buy and sell as they see fit. (If you’re investing in a 401(K), you are giving all the control to your plan administrator – you can’t pick and choose among ALL mutual funds, only among those they decide are good for you.) You have to trust that fund manager to make choices you agree with. You have to trust that they understand what’s going on in the market.

However as so many experts are fond of noting, the large majority of fund managers failed to beat the stock indices, like the S&P 500 Index. So, lots of people started parking their money into what they thought were best index funds. For a while there, the funds did follow the stock markets, and did as well as the indices did, which wasn’t bad – until the markets crashed, and kept crashing. And so did all the index funds.

How can an average investor ever again feel confident or secure enough to get back into the markets? If you still think it should be as easy as just sending in your check, then you are better off putting your money in a cash savings account or under the mattress. To avoid losing, you need to learn something about investing.

Here’s just one solution. First, you need to learn to invest money. No matter how expert you are, or how many years you’ve been in the market, there is always something more to learn. But abandon the idea that you can just send your check to the mutual fund every paycheck. That’s over. You need to learn more about the funds, about stocks, and about what options are out there if the markets turn down again. One good choice today is to learn about using Exchange Traded Funds (ETFs) instead of mutual funds – they trade like stocks, don’t have the same management fees and minimums to get invested, and you can buy a broad range of index funds, currencies, commodities and other investments that would otherwise be tough to get into for a new investor.

Next, you need to open an account where you can make all the decisions. If you currently have a retirement account through your employer, you should seriously consider opening up a self directed IRA as well. the reason is, many Americans can take advantage of an IRA when they don’t have access to other retirement options, or take an additional tax credit. For small business owners, there are self directed IRA plans such as a SEP-IRA that you can also open.

There are plenty of discount brokers out there. There is also a ton of websites where you can learn more about stock investing that you ever wanted to. This site recommends TradeKing as the best - fees are low, and they have awesome forums, educational materials, trading platforms and they have the Trader Network allowing you to follow top traders, ask questions and much more.

When you open a self directed account, you can open a regular brokerage account, or retirement accounts (IRA) or custodial accounts (UTMA, UGMA, Coverdell) for your kids’ investing. You can also open small business owner retirement accounts like SEP-IRA. Here is where you can take control of your retirement investments, and not delegate it to someone without knowing more. You can put a little money here to work with, until you learn more and step by step take back control of your investing.

All self directed means is that you decide and make the trade yourself, usually online, without having a broker or financial advisor do it for you. Using a discount broker with a lot of educational materials is key, and also to take small steps. You can buy safe investments in your self-directed account, like CDs or bonds, but you can also buy mutual funds, or exchange traded funds (ETFs) instead of mutual funds if you choose. You can also, as you learn more and bcome more comfortable with risk, branch out into options trading to help hedge your investment risk.

There is a lot involved in learning to invest money, and do well in the markets. With a self directed account, and taking the time to learn what should you invest in right now, you can learn what you need to know to profit from the incredible opportunities that will be coming up in the future.

I am really sick and tired of hearing these BS artists on television telling their callers not to sell their mutual funds or stocks because they will “lock in their losses”. The last time I heard this it was from – who else – Carmen Wang Ulrich. This is probably the most stupid scare tactic ever invented to prevent people who don’t want to learn how to invest from taking action. How stupid is that?

Here’s why it’s ridiculous to even listen to this dangerous myth:

- What if your stock goes to zero? Or the company goes bankrupt? At what point exactly should you sell? For a mutual fund, how low does it have to go before you throw in the towel?

- What if while you watch your investment lose money, you see that there are others out there that are making money? Do you not sell to avoid “locking in a loss”? You are guaranteed a loss if you don’t switch to something that’s making money!

- What if we have another market dive? What if we have zero growth for ten years – just as today’s market has wiped out all of the increases of the past ten? When do you sell in favor of something else? Like a CD?

OK let’s do the math. Investor A and Investor B each have $10,000 in a mutual fund that’s down 30% so they each now only have $7,000. All indications are that the market is still headed down. Or at least, that’s the investors’ fear.

Investor A listens to Carmen and sits there watching it lose another 20% because Investor A believed without knowing why that you shouldn’t “lock in” your loss by selling. Except that now Investor A has $5,600 in her account. (By the way: If you listened to Carmen last October, this is EXACTLY where you would be right now.) She sits there and watches her $5,000 bounce around the bottom of the market, because this is a market like nothing the tee vee people have ever seen before, and they don’t know what to do either. Eventually, the market moves up 10% after six months, but that puts her at only $5,500. She’s a long way off from gaining back her losses.

Investor B instead uses common sense, and doesn’t listen to tee vee “experts”, and sells when her account is down the first 30%, moving her $7,000 to a Ginne Mae (government) bond fund (not actual performance, only an example), earning 5% over the next 6 months, so she now has a $350 gain instead of a $1,400 loss, for a total of $7,350. She now moves $4,000 of that back into mutual funds that she feels confident are now moving up again. Investor B gets the same 10% market move that Investor A got, so she has $4,400 from her move back into mutal funds. And since she’s made 5% on the remaining $4,350 her totals are $4,400 + $4,565 for a total of $8,965 in her account, well ahead of Investor A. (She will now also keep watch on the market and know when to sell and when to buy!)

OK which person do you want to be?

No matter that the market is doing today, you DO NOT LOSE BY SELLING. This fear of selling is the one characteristic that will definitely make you a loser in the markets every time. You must understand that you will win some, you lose some, when you are smart about investing, you take your losses before they get too big, and move the money to where it will be working for you again. There is no such thing as “buy and hold for the long term”. Those days are gone. Learn what to do now, or stay away from the markets.

Before the economic crisis, plenty of people invested in index mutual funds as a way to diversify and ride the market without knowing too much about investing.  Whether you continue to invest in index mutual funds depends on what you think the future will hold.   Do you believe that the world economy will grow? Do you believe that US economy will grow?  Today we aren’t so sure. When you look at a major stock index, you are seeing an indicator of what investors think will happen to economic growth. Used to be, a whole year ago, you could make good money buying index funds. Today? Not so much.  Still: if you are in for the long term, are index funds for you?

It’s important to learn how do  mutual funds work, if you’re not clear on the specifics. Long term (and we don’t know exactly what that means), stocks are likely to go up. Eventually. But at what rate? How long will it take? Is this downturn “different” than the last time? It all makes things very difficult for the investor that use to spend ten minutes a month sending money to their index fund in their 401(K). Yet with all the many indexes around the world, there may be some opportunities there.

For index mutual funds, the fund share price will change according to the index performance. For example, thousands of mutual funds use the S&P 500 as the base of their portfolio. But the S&P is heavily weighted with financials, so there has been a real loss for investors who chose that index fund. you’ll also find there are many differences between  funds for operating expenses and “load” fees.  Fees and commissions can compound a loss in share price.

When you’re looking at index funds, you may also consider looking at Exchange Traded Funds, or ETFs. These are really just baskets of stocks, and don’t require the same active management as do mutual funds, even index mutual funds. You can choose ETFs that include the best of certain stocks or industries, but leave out the financial companies or other industries you want to avoid. You will also find lower fees for ETFs vs. most index funds. For the long term investor who wants to put certain amounts in each month, you want to stick with low fees. but today, even with index mutual funds, you don’t want to think that you can simply choose the best mutual fund, send your money, and in ten years you’ll be rich. For example, as of today, all gains for the past ten years were wiped out with the rcent market downturn. So again, what is the “long term” time horizon you are comfortable with?

The best strategy for investing in index mutual funds is one where you review regularly, move your funds according to market conditions, and don’t expect it to be like the old days a whole 10 months ago – you will have to be more actively aware of what your money is doing to avoid losses.

To an extent, diversification of your portfolio can help, if you add bond funds, emerging markets and other different types of indexes to your mix. In this crazy market, be sure you are knowledgable about what stocks you ar invested in, even if you’re investing in an index fund. That’s the best way to avoid big losses in your index mutual fund, and enjoy long term gains.