Going Against the Conventional Investment WisdomWritten by Terry Mitchell
First of all, I want to give everyone disclaimer that I am not a registered financial advisor and I don’t play one on TV. Therefore, I cannot legally provide financial advice and I will not do so. This is for informational purposes only and I’m not recommending any of my personal investment strategies to anyone else. Now, with that being said, I will outline some techniques I use for my personal investment strategy, without going into a whole lot of specifics. I generally go against conventional investment wisdom that you are accustomed to hearing, although I do use both a conservative and a not-so-conservative strategy. Most financial advisors put a great deal of emphasis on diversification. While this is probably appropriate for most people, I personally don’t buy it. The idea is that it limits risk. While it does indeed limit risk, for me it also limits my upside potential way too much. Therefore, I basically disregard whole concept. Most advisors will encourage investing for long term. This strategy is generally successful in building wealth, but unfortunately for me, it wouldn’t until after I’m old or dead. I invest for short and intermediate terms. I also do not buy or trade individual stocks. Instead, I buy and trade no-load mutual funds, including index funds. Even with use of a deep-discount broker, commissions from trading individual stocks will add up and cut into my profits. True no-load mutual funds don’t cost me anything to buy or sell. Besides, owning shares in a mutual fund is like owning shares of a lot of different stocks at one time without having to actually buy any of those stocks. Instead of buying individual stocks, I am buying classes or groups of stocks. I also don’t have to worry about which stocks to buy or sell, as that job is being taken care of by fund managers. Now, let’s talk about some guidelines I use specifically for my conservative strategy. I only buy funds that have earned a "Five-Star" rating from Morningstar (www.morningstar.com). They must also have a Morningstar risk rating of "low", "below average", or "average." In addition, they must have a Morningstar return rating of "above average" or "high." Also, they must be long-term winners, i.e., near top of their categories in five-year and/or ten-year performance. I also require them to be "Lipper Leaders", as deemed by Lipper (www.lipperleaders.com), in categories of "Returns", "Capital Preservation", and "Consistency." In my mind, consistency is just as important as high overall return and capital preservation. An inconsistent or volatile fund can cause problems for short and intermediate term investors, even if its longer term performance is excellent. Here’s problem: Let’s say a fund that I invested in went down 50% in first year I owned it. It would have to go up a whopping 100% next year for me to break even after two years. However, let’s say it went down 25% after first year. In that case, fund would only have to go up 33% in second year for me to break even. A 20% drop in first year would need only a 25% increase in second year to break even; a 15% drop would need only an 18% increase; a 10% drop would require only an 11% increase; and so on. Therefore, I stick with funds that have never gone down more than 10-20% in any one year. I prefer funds that have never had a losing year, but those are very hard to find. What about my more aggressive strategy? This is one that I’m using more and more often and is becoming more profitable, although I probably couldn’t quit my job and make a living off of it just yet. Is it going to make me rich? Probably not. However, I hope it will eventually put me in a financial position to retire early. This strategy involves actively trading various no-load market index funds. The experts say you can’t successfully time market. I believe this is true when using strictest definition of term, “market timing.”
| | Investing Online Has Its Rewards: Find Out How To Take Advantage Of ThemWritten by C.C. Collins
Computerized investing. Online investing. Have you taken next step yet? These days among savvy investors, online investment resources are synonymous with opportunity. The capabilities that we currently have at our fingertips were unavailable just ten years ago. The speed at which you can invest with an online broker, along with ease of use (you can trade in your underwear), makes traditional local brokers seem obsolete. More and more people are taking to “active investing” rather than just sticking money in mutual funds recommended by their advisors. This means atypical investors are now taking active roles in their portfolios and seeing greater returns, if they know what they are doing. In order to become an active investor, you must know what you are doing. It is your money we are talking about here. The thing is, once you know that there are ways to net up to 18%+ returns on investments that are hardly more risky than what most people consider safe today (mutual funds, diversification), you can hardly live with yourself by leaving your money in a “safe” 4% fund. I work with people to change their perceptions about what is possible with investing today. The tools available online for investors are simply incredible when you think about fact that investing news and latest trends would have to wait to reach you until they were printed and flown to whatever part of country you live in.
|
