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At first glance, asset correlation may seem like a complex topic. However, it is important to understand the concept and how it affects your portfolio. By combining assets with low correlation, you can potentially improve portfolio returns while reducing risk.
A common misconception regarding bonds is that they are only appropriate for older or more conservative investors. However, bonds should be considered by all investors as part of a well-diversified portfolio, even though their role may change over your lifetime.
Perhaps the most important move you can make for your investments is to properly diversify your portfolio. By investing in a mix of stocks, bonds, and cash, you’ll reduce the risk of a significant loss.
If you find it difficult to decide when to invest, consider a dollar cost averaging strategy. Dollar cost averaging involves investing a set amount of money in the same investment on a periodic basis. For instance, instead of investing $48,000 in one stock immediately, you might decide to invest $4,000 in that stock at the beginning of each of the next 12 months. Thus, you don’t need to think about when to invest. You just follow your strategy and continue to invest on a periodic basis.
When making decisions about your investment portfolio, try to avoid these common investor mistakes:
A Monte Carlo simulation is a complex mathematical process that estimates the probability of reaching specific goals in the future. This method is often used to determine the probability that your investments will last for a certain number of years during retirement.
When you developed your asset allocation strategy you did it for a reason. You wanted to control your portfolio’s risk by deciding how to allocate among different asset classes. However, your portfolio will not stay within that allocation by itself. Since different investments earn different rates of return, over time your allocation will get out of line. Thus, you need to review your portfolio periodically and make adjustments to rebalance it.
Many investment principles used to develop investment portfolios derive from one investment theory: the capital asset pricing model. What exactly is the capital asset pricing model, and how does it apply to your particular investments?
Unfortunately, there is no one asset allocation plan that is suitable for all investors. You need to evaluate your risk tolerance, time horizon for investing, and return needs to determine how you should allocate your portfolio among the various investment categories. To help you with those decisions, consider the following ten points:
New Commodities-based ETFs are opening up commodities markets and commodities-based strategies to the average investor that previously would have been difficult and require sophisticated expertise to implement in their portfolios.
Continue reading "ETFs Offer Access to the Commodities Markets" »
On December 19th, right before the Holidays, State Street Global Advisors launched the first Exchange Traded Fund (ETF) designed to track overseas real-estate stocks. The streetTracks Dow Jones Wilshire International Real Estate ETF is traded under the symbol RWX on the American Stock Exchange.
Continue reading "First International Real Estate ETF Launched" »
American Depository Receipts (ADRs) are the form in which foreign stocks trade on U.S. stock exchanges. An ADR is a negotiable certificate issued by a U.S. bank (the depositary), representing shares of a foreign stock. The original foreign stock certificates are owned by the bank and held in the issuer’s country. Each ADR can represent a multiple or fraction of the original foreign stock. This ratio is set by the depositary so the ADR’s price falls within a range considered typical for U.S. stocks. ADR's offer several benefits for individuals wanting to purchase stocks on foreign stock exchanges.
We all know the basics — design an asset allocation plan, ignore market fluctuations, and stick with the plan for the long term. In other words, become a buy-and-hold investor. But in an era where everything seems to change overnight, is it realistic to expect to find investments you will be comfortable owning for years or even decades?
Warren Buffett, perhaps the greatest investor alive today, has an amusing way to describe his rules for investing:
Rule #1 — never lose money
Rule #2 — don’t forget rule #1
Although this may seem like an overly simple and conservative way to succeed, I hope to show you that these simple rules hold the key to successful investing for the vast majority of people: understand when you are playing a loser’s game and then play accordingly.
Your asset allocation mix represents your personal decisions about how much of your portfolio to allocate to various investment categories, such as stocks, bonds, and cash. How much you allocate to each category depends on your financial objectives and personal circumstances. However, it is a percentage that is likely to change over time. As your needs for safety of principal and a steady income stream become more important, the percentage of stocks you own is likely to decrease. Some factors to consider when deciding how much to allocate to stocks include:
Whether you’re researching a stock to purchase or monitoring a stock you own, the company’s annual report should be central to your analysis. Annual reports contain a wealth of financial information, which can provide significant insight into a company’s operations and future prospects.
The two basic investing styles are growth and value. While one style tends to perform better at any given time, the dominant style varies over time. The basic elements of each style include:
Continue reading "Should You Favor Growth or Value Investing" »
If you want to invest in international investments, you may want to consider a systematic approach. Some of the steps include: the percentage of your portfolio to allocate to international investments; whether you want to invest based on countries or companies; familiarity with the available investment options; risks involved in international investing; and reviewing and monitoring your investments.
During the 1990s, the U.S. stock market significantly outperformed international stock markets. Never a particularly large percentage of U.S. investment portfolios, international investments drew even less attention during that time. Due to the significant volatility in the U.S. stock market over the past several years, is now the time to take another look at international investments? Before deciding, consider the answers to these questions on the subject:
When the time comes to sell your real estate, some owners of highly appreciated real estate could be staring at a substantial capital-gains tax bill. A section of the Tax Code may help you convert your appreciated property into an income stream—while deferring up to 100% of the capital-gains tax that would otherwise be due on the sale.
Continue reading "1031 Exchanges, A Tax-Deferred Real Estate Strategy" »
Selling an investment can be an emotional decision, especially if the investment has experienced a loss. Many investors can’t stand the thought of selling at a loss, preferring to wait until the investment rebounds to the breakeven point. However, the investment may not rebound to that level or may take a very long time to do so. In the meantime, you could have been invested in other alternatives with better prospects.
When designing an investment program, your expected rate of return is a critical element in determining how much to invest to meet a future goal. Since no one can predict future returns, the expected rate of return is typically estimated based on an analysis of past returns for various investments.
Dollar cost averaging involves investing a set amount of money in the same investment on a periodic basis. Since a fixed amount of money is being invested, more shares are purchased when prices are lower and fewer shares are purchased when prices are higher. Of course, whether dollar cost averaging produces a higher return than investing a lump sum immediately depends on whether the investment’s price rises, declines, or fluctuates over the investment period.
ManagingMoney.com sat down recently with Jim King, The Director of Portfolio Management, for Rydex Investments. Rydex Investments manages in excess of $13 billion dollars in over 51 mutual funds. Long known for innovation, Rydex is currently one of the largest sponsors of Exchange Traded Funds (ETFs), and one of the few Fund Families offering Short and Leveraged Funds. Jim gives insights as to how investors can use Rydex's unique investment vehicles to gain market exposure to specific market sectors or control market risks.
Continue reading "Exclusive Interview with Rydex Investments" »
The theory behind asset allocation is to spread your investments across different asset classes to help protect your portfolio from downturns in any one asset. Since different investments are affected differently by economic events and market factors, owning different types of investments helps reduce the chances that your portfolio will be adversely affected by a particular risk type. Does asset allocation really accomplish this goal?
Consuelo Mack on Wealthtrack recently interviewed three top value managers, David Winters, Susan Byrne, and John Montgomery. David Winters is portfolio manager for the Wintergreen Fund and specializes in global value investing, Susan Byrne is CEO of Westwood Management that runs the Westwood Large-Cap Equity Fund and focuses on large-cap U.S. stocks, and John Montgomery with Bridgeway Funds uses quantitative computer models in his search for value. Each gave their perspective as to where they are finding value despite stock markets and interest rates both at recent highs.
ProFunds announced today the launch of the first country-specific mutual fund for investors who believe the Japanese markets are ready to drop. Called the UltraShort Japan ProFund, the funds objective is to gain twice as much on a percentage basis as any decline on the U.S. traded, dollar-based Nikkei 225 futures contract on a daily basis.
Continue reading "ProFunds Launches First "Short" Japanese Fund" »
Continue reading "Grab your Shorts, Real Estate Values may be Dropping" »
If you have business or investment property you’d like to sell, take a look at the 1031 exchange rules before doing so. These rules allow you to sell one property and purchase another of “like kind”, deferring any gains. “Like kind” means the property must be used for business or investment purposes, which could include apartment buildings, office buildings, industrial buildings, commercial buildings, rental housing units, raw land, farms, and ranches. You do not have to sell and buy the exact same type of property. Thus, you could sell undeveloped land and purchase a commercial building, deferring the gain. Or you could sell the building used in your business and purchase an apartment complex, again deferring the gain.
Continue reading "The Basics of 1031 Real Estate Property Exchanges" »
Looking for a way to invest in specific foreign companies without learning all the intricacies of other countries’ stock markets? You may want to consider American Depositary Receipts (ADRs).
One of your portfolio’s largest expenses is probably taxes. Ordinary income taxes on short-term capital gains and interest income can go as high as 35%, while long-term capital gains and dividend income are taxed at rates not exceeding 15% (5% if you are in the 10% or 15% tax bracket). One way to help keep your portfolio growing is to invest in a tax-efficient manner. Some suggestions include:
We all know we should rebalance our portfolios periodically to ensure they stay in line with our targeted asset allocation. Why, then, is it so difficult for us to do this? The primary reason is that rebalancing goes against our basic instincts. With rebalancing, you are generally selling those investments performing well to purchase those that are underperforming, which just doesn’t seem to make sense. It might help to remember that by rebalancing, you are following a fundamental investment principle — you are buying low (those investments that are underperforming) and selling high (those investments that are performing well).
Continue reading "Make Rebalancing Your Portfolio A Habit" »
With an asset allocation strategy, you can’t just allocate assets in your portfolio once and then forget about your portfolio. Over time, your actual asset allocation will stray from your desired allocation because different investments in your portfolio will experience different rates of return. At least annually, review your portfolio to see if changes are needed to bring your allocation back in line. Some factors to consider include:
When asked how their assets are diversified, most people respond by indicating how much of their portfolio is divided between stocks, bonds, and cash. But looking at your overall financial diversification means more than simply looking at your investment portfolio — you need to examine all your assets. Some items to consider include:
Continue reading "Diversifying All Your Assets - Income, Home, & More" »
The past few years have taught investors the meaning of volatility in investing. While investors weren’t that concerned about volatility before 2000, when it worked to their advantage, the negative volatility of the past few years has been much tougher to deal with.
Continue reading "Using Diversification to Control Portfolio Volatility" »
Periodically, you should thoroughly review your portfolio to ensure it is still helping you work toward your investment goals. Follow these steps during that review:
When faced with all the decisions that need to be made to ensure you select the proper investments to meet your long-term financial goals, it’s easy to become overwhelmed. How do you choose the right combination of investments to help you reach a goal that may be decades away? The answer is to focus on the fundamentals. Make sure to get these basics right:
With interest rates still at historically
low levels and the economy picking up steam, the Fed has started
to raise interest rates. The question now is by how much and how
quickly the Fed will increase interest rates. The answer is especially
pertinent to bond investors who will find their bond values decreasing
as interest rates increase. But don't totally abandon bonds just
because their values may decrease in the near term. There are
still valid reasons to hold bonds in your portfolio.
Continue reading "Dealing with Current Rising Interest Rates & Interest Rate Risk" »
Continue reading "Consider Dollar Cost Averaging to Reduce Investment Volatility" »
Continue reading "When Selling Investments, Don't Make These Mistakes" »
Continue reading "Dealing with the Possibility of Lower Investment Returns" »
Continue reading "Getting Your Investment Portfolio Back On Track" »
Continue reading "When Did You Last Rebalance Your Portfolio?" »
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